CITY OF NORFOLK, VIRGINIA - FPR · 2013 3,360,000 2.250 1.650 102.560 FS3 ... Norfolk's Educational...

NEW ISSUE 2009A Bonds and 2009B Bonds Ratings: Fitch AA Book-Entry-Only (See “Ratings” herein) Moody’s A1 S&P AA 2009C Note Ratings: Moody’s MIG-1 (See “Ratings” herein) S&P SP1+

CITY OF NORFOLK, VIRGINIA

$55,280,000 $21,895,000 $44,710,000 General Obligation Capital

Improvement Bonds, Series 2009A General Obligation Refunding

Bonds, Series 2009B General Obligation Bond

Anticipation Note, Series 2009C

Dated: Date of delivery 2009A Bonds Due: November 1, as shown on the inside cover 2009B Bonds Due: July 1, as shown on the inside cover 2009C Note Due: March 1, as shown on the inside cover

The City of Norfolk, Virginia (the “City”) prepared this Official Statement to provide information on the 2009A Bonds, the 2009B Bonds and the 2009C Note (collectively the “Bonds”). This cover page presents a summary of selected information for your convenience and does not provide a complete description of the Bonds. To make an informed decision regarding the Bonds, you should read this Official Statement in its entirety. Tax Matters In the opinion of Bond Counsel, under current law and assuming the compliance with certain covenants by and

the accuracy of certain representations and certifications of the City and other persons and entities described in “Tax Matters” on page 7, interest on the Bonds (a) is excludable from the gross income of the owners of the Bonds for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”) and (b) is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Bond Counsel is also of the opinion that interest on the 2009B Bonds is includable in the adjusted current earnings of certain corporations for purposes of computing the federal alternative minimum tax imposed on such corporations but interest on the 2009A Bonds and the 2009C Note is excludable from adjusted current earnings.

Bond Counsel is also of the opinion that interest on the Bonds is excludable from gross income for purposes of income taxation by the Commonwealth of Virginia (the “Commonwealth”).

Bond Counsel expresses no opinion regarding any other tax consequence related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds.

See “Tax Matters” on page 7 regarding other tax considerations.

Security The Bonds are general obligations of the City. See page 6.

Redemption See inside cover.

Authority for Issuance Ordinance No. 43,428, adopted by the City Council of the City on May 5, 2009, authorizes the issuance of the Bonds.

Purpose The City will use these proceeds to (i) finance capital projects, (ii) current refund a portion of the City’s General Obligation Capital Improvement and Refunding Bonds, Series 1998, (iii) advance refund a portion of the City’s General Obligation Capital Improvement and Refunding Bonds, Series 2002 and (iv) pay costs of issuance of the Bonds. See page 4.

Interest Payment Dates Interest on the 2009A Bonds will be payable semi-annually on November 1 and May 1, commencing November 1, 2009. Interest on the 2009B Bonds will be payable on January 1 and July 1, commencing January 1, 2010. Interest on the 2009C Note will be payable on March 1, 2010.

Registration Book-Entry-Only; The Depository Trust Company. See page 2.

Closing/Delivery Date On or about May 21, 2009.

Bond Counsel McGuireWoods LLP, Richmond, Virginia.

Financial Advisor Public Financial Management, Inc., Arlington, Virginia.

Registrar/Paying Agent Acting Director of Finance of the City.

Issuer Contact

Acting Director of Finance of the City. (757) 664-4346.

Dated: May 13, 2009


$55,280,000 General Obligation Capital Improvement Bonds, Series 2009A

(Base CUSIP Number 655867)

Maturities, Amounts, Interest Rates, Yields and Prices

Year of

Maturity ( November 1)

Principal Amount

Interest Rate

Yield

Price

CUSIP Suffix

2010 $4,520,000 2.000% 0.850% 101.647% FP9 2011 4,565,000 2.000 1.100 102.164 FQ7 2012 4,615,000 2.000 1.400 102.010 FR5 2013 3,360,000 2.250 1.650 102.560 FS3 2014 3,385,000 2.500 2.000 102.566 FT1 2015 2,960,000 3.000 2.270 104.352 FU8 2016 2,985,000 3.250 2.500 105.064 FV6 2017 2,225,000 4.000 2.700 109.756 FW4 2018 2,225,000 4.000 2.900 109.029 FX2 2019 2,225,000 4.000 3.100 107.976 FY0 2020 2,225,000 4.000 3.300 106.140* FZ7 2021 2,225,000 4.000 3.450 104.787* GA1 2022 2,225,000 4.000 3.600 103.454* GB9 2023 2,220,000 4.000 3.700 102.577* GC7 2024 2,220,000 4.000 3.850 101.278* GD5 2025 2,220,000 4.000 4.000 100.000 GE3 2026 2,220,000 4.000 4.100 98.760 GF0 2027 2,220,000 4.125 4.200 99.041 GG8 2028 2,220,000 4.250 4.300 99.343 GH6 2029 2,220,000 4.375 4.400 99.662 GJ2

* Priced to the first optional redemption date of November 1, 2019.

Optional Redemption

The 2009A Bonds maturing on or before November 1, 2019 are not subject to optional redemption prior to maturity. The 2009A Bonds maturing after November 1, 2019 are subject to optional redemption prior to their respective maturities on or after November 1, 2019 at the option of the City, in whole or in part (in increments of $5,000) at any time, at par plus the interest accrued on the principal amount to be redeemed to the date fixed for redemption.


$21,895,000 General Obligation Refunding Bonds, Series 2009B


Year of

Maturity (July 1)

Principal Amount

Interest Rate

Yield

Price

CUSIP Suffix

2010 $6,095,000 4.000% 0.650% 103.702% GK9 2011 5,950,000 3.000 1.250 103.634 GL7 2013 2,440,000 3.000 1.760 104.895 GN3 2014 2,395,000 5.000 2.130 113.826 GP8 2015 1,255,000 5.000 2.390 114.755 GU7 2016 1,255,000 5.000 2.600 115.487 GQ6 2017 1,255,000 5.000 2.800 115.861 GR4 2018 1,250,000 5.000 3.000 115.837 GS2

Optional Redemption The 2009B Bonds are not subject to optional redemption or prepayment, respectively, prior to maturity.


$44,710,000 General Obligation Bond Anticipation Note, Series 2009C


$44,710,000 due March 1, 2010, Priced at 100.662% to Yield 0.395%, CUSIP Suffix GT0

Optional Redemption

The 2009C Note is not subject to optional redemption or prepayment, respectively, prior to maturity.


CITY COUNCIL

Paul D. Fraim, Mayor

Anthony L. Burfoot, Vice Mayor Dr. Theresa W. Whibley Daun S. Hester Donald L. Williams Paul R. Riddick Barclay C. Winn

W. Randy Wright

______________________

MUNICIPAL OFFICIALS

Regina V.K. Williams, City Manager Alice M. Kelly, Acting Director of Finance

Bernard A. Pishko, City Attorney

______________________

BOND COUNSEL FINANCIAL ADVISOR

McGuireWoods LLP Public Financial Management, Inc. Richmond, Virginia Arlington, Virginia

All quotations from, and summaries and explanations of, provisions of law and documents herein do not purport to be complete and reference is made to such laws and documents for full and complete statements of their provisions. Any statements made in this Official Statement involving estimates or matters of opinion, whether or not expressly so stated, are intended merely as estimates or opinions and not as representations of fact. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implications that there has been no change in the affairs of the City since the respective dates as of which information is given herein.

No dealer, broker, salesman or any other person has been authorized by the City or the successful bidders to give any information or to make any representations with respect to the City or Bonds issued thereby, other than those contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by the City or the successful bidders.

TABLE OF CONTENTS

Page

PART I THE BONDS 1 DESCRIPTION OF THE BONDS 1 General 1 Optional Redemption 2 BOOK-ENTRY-ONLY SYSTEM 2 AUTHORITY FOR AND PURPOSES OF THE BONDS 4 PLAN OF REFUNDING 5 SOURCES AND USES 6

SECURITY FOR AND SOURCES OF PAYMENT OF THE BONDS 6 General 6 Bondholders’ Remedies in Event of Default 6 TAX MATTERS 7 The Bonds 7 Virginia Tax Matters 10 PENDING LITIGATION 10 RATINGS 10 FINANCIAL STATEMENTS 10 CERTIFICATES OF CITY OFFICIALS 10 FINANCIAL ADVISOR 11 SALE AT COMPETITIVE BIDDING 11 CONTINUING DISCLOSURE 11 MISCELLANEOUS 11 PART II CITY INDEBTEDNESS 13 Limitation on Incurrence of Debt 13 Debt Outstanding 13 Debt Incurred by Other Governmental Entities 19 Overlapping Debt 19 Short-Term Borrowing 19 Capital Lease Obligations 19 Water Revenue Bonds 19 Parking System Revenue Bonds 20 Debt History 20 Capital Improvement Program Budget 20 PART III FINANCIAL INFORMATION 23 Fiscal Year 23 Reporting Entity 23 BASIS OF ACCOUNTING AND ACCOUNTING STRUCTURE 23 INDEPENDENT ACCOUNTANTS 24 BUDGETARY PROCESS 24 GENERAL GOVERNMENTAL REVENUE 24 Overview 24 Property Tax Rates, Levies and Collections 24 Other Revenue Sources 25 GENERAL FUND EXPENDITURES 33 Costs of General City Government 33 Protected Self-Insurance Program 34 Retirement Plan 35 Other Post-Employment Benefits 35 Employee Relations and Collective Bargaining 36 PUBLISHED FINANCIAL INFORMATION 36

GENERAL FUND OPERATING BUDGET RESULTS FOR FISCAL YEAR ENDED JUNE 30, 2008 36 General Fund Operating Budget 37 RESULTS OF FINANCIAL OPERATIONS 40 PART IV ENTERPRISE FUNDS 43 WATER UTILITY FUND 43 Overview 43 Wholesale Contracts 43

Page

Financial Management 44 Water Rates 44 WASTEWATER UTILITY FUND 45 PARKING FACILITIES FUND 45 PART V THE CITY OF NORFOLK 47 INTRODUCTION 47 CITY GOVERNMENT 47 Certain Elected Officials 47 Certain Appointed Officials 49 Governmental Services and Facilities 50 Other Governmental Entities 51 ECONOMIC AND DEMOGRAPHIC FACTORS 54 Population 54 Housing and Construction Availability 56 Employment 57 Economic Development 59 Downtown Development 59 Residential Development 60 Arts and Culture 61 Cruise Norfolk 61 Norfolk Airport Authority 61 Hotel Development 61 Waterfront Recreation Investment 61 Sports and Recreation 61 Norfolk's Educational Institutions 62 Institutional Technology Parks 63 Norfolk's Medical Institutions 63 The Virginia Port Authority 64 Business, Industry and Commerce 64 Military 68

APPENDIX A: City of Norfolk, Virginia General Purpose Financial Statements for the Fiscal Year Ended June 30, 2008

APPENDIX B: Form of Legal Opinion of Bond Counsel

APPENDIX C: Form of Continuing Disclosure Agreement

[THIS PAGE INTENTIONALLY LEFT BLANK]

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OFFICIAL STATEMENT

Relating to the Issuance of CITY OF NORFOLK, VIRGINIA

$55,280,000 $21,895,000 $44,710,000 General Obligation Capital

Improvement Bonds, Series 2009A General Obligation Refunding

Bonds, Series 2009B General Obligation Bond

Anticipation Note, Series 2009C

PART I

THE BONDS The purpose of this Official Statement, including the financial information contained in Appendix A attached hereto, is to furnish information in connection with the sale by the City of Norfolk, Virginia (the “City”), of its $55,280,000 General Obligation Capital Improvement Bonds, Series 2009A (the “2009A Bonds”), its $21,895,000 General Obligation Refunding Bonds, Series 2009B (the “2009B Bonds”) and its $44,710,000 General Obligation Bond Anticipation Note, Series 2009C (the “2009C Note”), (the 2009A Bonds, the 2009B Bonds and the 2009C Note are collectively referred to herein as the “Bonds”. The Bonds will be general obligations of the City to the payment of which the full faith and credit of the City are pledged. This Official Statement has been authorized by the City for use in connection with the sale of the Bonds. The City has undertaken in the Ordinance, as hereinafter defined, to comply with the provisions of Rule 15c2-12 (the “Rule”), promulgated by the Securities and Exchange Commission (the “SEC”) and as in effect on the date hereof, by providing annual financial information and material event notices required by the Rule. See Appendix C, “FORM OF CONTINUING DISCLOSURE AGREEMENT.” All financial and other information presented in this Official Statement has been provided by the City from its records except for information expressly attributed to other sources. The presentation of information is intended to show recent historic information, and is not intended, unless specifically stated, to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by such financial and other information, will necessarily continue or be repeated in the future. This Official Statement should be considered in its entirety, and no one subject discussed should be considered less important than any other by reason of its location in the text. Reference should be made to laws, reports or other documents referred to in this Official Statement for more complete information regarding their contents.

DESCRIPTION OF THE BONDS General The Bonds shall be dated the date of delivery, and shall be payable in annual installments, subject to prior redemption, as applicable, in the principal amounts and at the rates set forth on the inside cover page of this Official Statement. Interest on the 2009A Bonds will be payable semi-annually on November 1 and May 1, commencing November 1, 2009. Interest on the 2009B Bonds will be payable semi-annually on January 1 and July 1, commencing January 1, 2010. Interest on the 2009C Note will be payable on March 1, 2010.

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Optional Redemption The 2009A Bonds maturing on or before November 1, 2019 are not subject to optional redemption prior to maturity. The 2009A Bonds maturing after November 1, 2019 are subject to optional redemption prior to their respective maturities on or after November 1, 2019 at the option of the City, in whole or in part (in increments of $5,000) at any time, at par plus the interest accrued on the principal amount to be redeemed to the date fixed for redemption. The 2009B Bonds and the 2009C Note are not subject to optional redemption or prepayment, respectively, prior to maturity. If less than all of the 2009A Bonds maturing after November 1, 2019 are called for redemption, the maturities of such 2009A Bonds to be redeemed shall be selected by the Director of Finance of the City in such manner as he or she in his or her discretion may determine. So long as a book-entry system is used for determining beneficial ownership of the 2009A Bonds, if less than all of the 2009A Bonds within a maturity are to be redeemed, The Depository Trust Company, New York, New York (“DTC”) and its participants shall determine which of the Bonds within a maturity are to be redeemed. Any notice of optional redemption of the 2009A Bonds may state that it is conditioned upon there being available on the redemption date an amount of money sufficient to pay the redemption price plus interest accrued and unpaid to the redemption date, and any conditional notice so given may be rescinded at any time before the payment of the redemption price of any such condition so specified is not satisfied. If a redemption does not occur after a conditional notice is given due to an insufficient amount of funds on deposit by the City, the corresponding notice of redemption shall be deemed to be revoked. Notice of redemption shall be given by certified or registered mail to DTC or its nominee as the registered owner of the 2009A Bonds. Such notice shall be mailed not more than 60 days nor less than 30 days before the date fixed for redemption. The City will not be responsible for mailing notices of redemption to the Beneficial Owners of the 2009A Bonds.

BOOK-ENTRY-ONLY SYSTEM

The description which follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payments of principal of and interest on the bonds to DTC, its nominee, Direct Participants (as defined below) or Beneficial Owners (as defined below), confirmation and transfer of beneficial ownership interests in the bonds and other bond-related transactions by and between DTC, the Direct Participants and Beneficial Owners is based solely on information furnished by DTC.

DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee), or such other name as may be requested by an authorized representative of DTC. One fully registered certificate will be issued for each maturity of the Bonds and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments or from over 100 countries that DTC’s participants (the “Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other

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securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the “Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of the actual purchaser of each Bond (the “Beneficial Owner”) is in turn recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmations from DTC of their purchases. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of the Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the identities of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct or Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its

4

usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the bond registrar or paying agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the City or the bond registrar and paying agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the bond registrar and paying agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City or the bond registrar and paying agent. Under such circumstances, in the event that a successor securities depository is not obtained, the Bonds certificates are required to be printed and delivered.

The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered to DTC.

Neither the City nor the bond registrar and paying agent has any responsibility or obligation to the Direct or Indirect Participants or the Beneficial Owners with respect to (a) the accuracy of any records maintained by DTC or any Direct or Indirect Participant; (b) the payment by any Direct or Indirect Participant of any amount due to any Beneficial Owner in respect of the principal of and interest on the Bonds; (c) the delivery or timeliness of delivery by any Direct or Indirect Participant of any notice to any Beneficial Owner that is required or permitted to be given to Holders; or (d) any other action taken by DTC, or its nominee, Cede & Co., as Holder, including the effectiveness of any action taken pursuant to an Omnibus Proxy.

So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references in this Official Statement to the Holders of the Bonds or Bondholders mean Cede & Co. and not the Beneficial Owners, and Cede & Co. will be treated as the only Holders of the Bonds.

The City may enter into amendments to the agreement with DTC or successor agreements with a successor securities depository, relating to the book-entry system to be maintained with respect to the Bonds without the consent of Beneficial Owners or Holders.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.

AUTHORITY FOR AND PURPOSES OF THE BONDS

The Bonds have been authorized and are being issued pursuant to the Public Finance Act of 1991, Chapter 26, Title 15.2 of the Code of Virginia of 1950, as amended (the “Virginia Code”), and Ordinance

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No. 43,428 adopted by the City Council of the City (the “City Council”) on May 5, 2009 (the “Ordinance”). The Ordinance authorized the issuance and sale of up to $115,000,000 in general obligation bonds and/or general obligation bond anticipation notes. The Ordinance also authorized the issuance of up to $35,000,000 in general obligation refunding bonds. Proceeds of the 2009A Bonds will be used to finance various capital projects and to pay or provide for the underwriters and original issue discount(s) related to the issuance and sale of the Bonds. Proceeds of the 2009C Note will be used to finance parking projects on an interim basis during construction. The City intends to refinance the 2009C Note on a long-term basis in 2010 with general obligation bonds or parking revenue bonds.

PLAN OF REFUNDING Proceeds of the 2009B Bonds will be used to provide funds (i) to current refund a portion of the outstanding principal balance of the City’s General Obligation Capital Improvement and Refunding Bonds, Series 1998 (the “Refunded 1998 Bonds”) issued on June 30, 1998 and maturing July 1, 2010 through July 1, 2014, inclusive, (ii) to advance a portion of the outstanding principal balance of the City’s General Obligation Capital Improvement and Refunding Bonds, Series 2002 (the “Refunded 2002 Bonds” and, together with the 1998 Bonds, the “Refunded Bonds”) issued on February 1, 2002 and maturing on January 1, 2016 through January 1, 2019, inclusive and (iii) pay or provide for the underwriters and original issue discount(s) related to the issuance and sale of the Bonds. The Refunded 1998 Bonds will be redeemed at par on or about July 1, 2009. The Refunded 2002 Bonds will be redeemed at par on or about January 1, 2012. The Refunded 1998 Bonds were issued (i) to finance a portion of the City’s Capital Improvement Program, as the Council may amend it from time to time, (ii) to advance refund the entire $42,000,000 outstanding principal amount of the City’s General Obligation Capital Improvement and Refunding Bonds, Series 1992A, maturing from February 1, 2006 to February 1, 2012, inclusive, (iii) to advance refund the entire $5,000,000 outstanding principal amount of the City’s General Obligation Capital Improvement Bonds, Series 1995, maturing on June 1, 2014 and June 1, 2015, and (iv) to pay or provide for the underwriter’s discount related to the issuance and sale of the Refunded Bonds. The Refunded 2002 Bonds were issued (i) to finance capital projects, (ii) to current refund all of the City’s General Obligation Capital Improvement and Refunding Bonds, Series 1992A, (iii) to advance refund a portion of the City’s General Obligation Capital Improvement and Refunding Bonds, Series 1993, (iv) to advance refund a portion of the City’s General Obligation Capital Improvement Bonds, Series 1995, and (v) to pay costs of issuance of the Bonds. A portion of the proceeds of the Bonds in the amount of $23,492,809.65 will be deposited with Wells Fargo Bank, N.A. (“Escrow Agent”), pursuant to an Escrow Agreement, dated May 21, 2009, between the City and the Escrow Agent (the “Escrow Agreement”). The Escrow Agreement will provide for the purchase of direct, non-callable obligations of the United States Treasury (the “Escrow Securities”) that will mature and bear interest at times and in amounts sufficient to pay the principal of, premium and interest on the Refunded Bonds through their respective redemption dates. The sufficiency of the Escrow Securities deposited with the Escrow Agent was verified by Robert Thomas, CPA, LLC out of Shawnee Mission, Kansas.

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SOURCES AND USES The following tables set forth the anticipated application of the proceeds of the Bonds for the purposes described above:

The Bonds

1 Includes Underwriter’s discount, legal fees and other costs of issuance.

SECURITY FOR AND SOURCES OF PAYMENT OF THE BONDS General The Bonds are general obligations of the City and the City’s full faith and credit of the City are irrevocably pledged to the payment of principal of, premium, if any, and interest on the Bonds. While the Bonds remain outstanding and unpaid, the City Council is authorized and required to levy and collect annually, at the same time and in the same manner as other taxes of the City are assessed, levied and collected, a tax upon all taxable property within the City, over and above all other taxes authorized or limited by law, and without limitation as to rate or amount, sufficient to pay when due the principal of, and interest on the Bonds to the extent other funds of the City are not lawfully available and appropriated for such purpose. The City has never defaulted in the payment of either principal of, or interest on, any indebtedness. Bondholders’ Remedies in Event of Default Section 15.2-2659 of the Virginia Code provides that upon affidavit of any owner, or any paying agent therefor, of a general obligation bond in default as to payment of principal or interest, the Governor of the Commonwealth of Virginia (the “Commonwealth”) shall conduct a summary investigation. If such default is established to the Governor’s satisfaction, the Governor shall order the State Comptroller to withhold all funds appropriated and payable by the Commonwealth to the political subdivision so in default and apply the amount so withheld to payment of the defaulted principal and interest. The State Comptroller advises that to date no order to withhold funds pursuant to Section 15.2-2659, or its predecessors, Sections 15.1-225 and 15.1-227.61, has ever been issued. Although Section 15.2-2659 has not been considered by a Virginia court, the Attorney General of Virginia has opined that appropriated funds may be withheld by the Commonwealth pursuant to one of its predecessors, Section 15.1-225. In

Series 2009A Series 2009B Series 2009C Total IssuanceSources of Funds: $ 55,280,000.00 $ 21,895,000.00 $ 44,710,000.00 $ 121,885,000.00 Plus: Net Original Issue Premium $ 1,648,930.90 $ 1,668,985.75 $ 295,980.20 $ 3,613,896.85

Total Sources $ 56,928,930.90 $ 23,563,985.75 $ 45,005,980.20 $ 125,498,896.85

Uses of Funds:General Capital Fund $ 56,100,020.07 $ 5,029.58 n/a $ 56,105,049.65 Parking Facilities Fund n/a n/a $ 45,003,297.60 $ 45,003,297.60 Deposit to Escrow n/a $ 23,492,809.65 n/a $ 23,492,809.65 Issuance Expenses 1 $ 828,910.83 $ 66,146.52 $ 2,682.60 $ 897,739.95

Total Uses $ 56,928,930.90 $ 23,563,985.75 $ 45,005,980.20 $ 125,498,896.85

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the fiscal year ended June 30, 2008, the Commonwealth provided $95,528,786 to the City which was deposited in the City’s General Fund. Although Virginia law currently does not authorize such action, future legislation may enable the City to file a petition for relief under the United States Bankruptcy Code (the “Bankruptcy Code”) if it is insolvent or unable to pay its debts. Bankruptcy proceedings by the City could have adverse effects on the Bondholders, including (1) delay in the enforcement of their remedies, (2) subordination of their claims to claims of those supplying goods and services to the City after the initiation of bankruptcy proceedings and to the administrative expenses of bankruptcy proceedings or (3) imposition without their consent of a reorganization plan reducing or delaying payment of the Bonds. The Bankruptcy Code contains provisions intended to ensure that, in any reorganization plan not accepted by at least a majority of a class of creditors such as the holders of general obligation bonds, such creditors will have the benefit of their original claim or the “indubitable equivalent.” The effect of these and other provisions of the Bankruptcy Code cannot be reliably predicted and may be significantly affected by judicial interpretation.

TAX MATTERS The Bonds Opinion of Bond Counsel. Bond Counsel’s opinion will state that, under current law and assuming the compliance with the Covenants (as defined below) by and assuming the accuracy of certain representations and certifications of the City and certain other persons and entities, interest on the Bonds (including any accrued “original issue discount” properly allocable to the owners of the Bonds), (a) is excludable from the gross income of the owners of the Bonds for purposes of federal income taxation under Section 103 of the Code and (b) is not a specific item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Bond Counsel observes that interest on the 2009B Bonds is includable in the adjusted current earnings of certain corporations for purposes of computing the federal alternative minimum tax imposed on such corporations but interest on the 2009A Bonds and the 2009C Note is excluded from adjusted current earnings. See Appendix B for the form of the opinion of Bond Counsel. Bond Counsel will express no opinion regarding other federal tax consequences arising with respect to the Bonds. Bond Counsel’s opinion speaks as of its date, is based on current legal authority and precedent, covers certain matters not directly addressed by such authority and precedent, and represents Bond Counsel’s judgment as to the proper treatment of interest on the Bonds for federal income tax purposes. Bond Counsel’s opinion does not contain or provide any opinion or assurance regarding the future activities of the City or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the Internal Revenue Service (the ‘IRS’). The City has covenanted, however, to comply with the requirements of the Code. Reliance and Assumptions; Effect of Certain Changes. In delivering its opinion regarding the Bonds, Bond Counsel is relying upon and assuming the accuracy of certifications and representations of representatives of the City, the Underwriters and other public officials as to facts material to the opinion, which Bond Counsel has not independently verified. In addition, Bond Counsel is assuming continuing compliance with the Covenants (as hereinafter defined) by the City. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied after the issuance of the Bonds in order for interest on the Bonds to be and remain excludable from gross income for purposes of federal income taxation. These requirements include, by way of example and not limitation, restrictions on the use, expenditure and investment of the proceeds of the Bonds and the use of the property financed or refinanced by the Bonds, limitations on the source of the payment of and the security for the Bonds, and the obligation to rebate certain excess earnings on the gross proceeds of the Bonds to the United States Treasury. The tax certificate for the

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Bonds (the “Tax Certificate”) contains covenants (the “Covenants”) under which the City has agreed to comply with such requirements. Failure by the City to comply with the Covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactively to their date of issue. In the event of noncompliance with the Covenants, the available enforcement remedies may be limited by applicable provisions of law and, therefore, may not be adequate to prevent interest on the Bonds from becoming includible in gross income for federal income tax purposes. Bond Counsel has no responsibility to monitor compliance with the Covenants after the date of issue of the Bonds. Certain requirements and procedures contained, incorporated or referred to in the Tax Certificate, including the Covenants, may be changed and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such document. Bond Counsel expresses no opinion concerning any effect on excludability of interest on the Bonds from gross income for federal income tax purposes of any such subsequent change or action that may be made, taken or omitted upon the advice or approval of counsel other than Bond Counsel. Certain Collateral Federal Tax Consequences. The following is a brief discussion of certain collateral federal income tax matters with respect to the Bonds. It does not purport to address all aspects of federal taxation that may be relevant to a particular owner thereof. Prospective purchasers of such Bonds, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning or disposing of the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to certain taxpayers including, without limitation, financial institutions, certain insurance companies, certain corporations (including S corporations and foreign corporations), certain foreign corporations subject to the “branch profits tax,” individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations and taxpayers attempting to qualify for the earned income tax credit. In addition, prospective purchasers should be aware that the interest paid on, and the proceeds of the sale of, tax-exempt obligations, including the Bonds, are in many cases required to be reported to the IRS in a manner similar to interest paid on taxable obligations. Additionally, backup withholding may apply to any such payments made to any Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Bond owner who is notified by the IRS of a failure to report all interest and dividends required to be shown on federal income tax returns. The reporting and withholding requirements do not in and of themselves affect the excludability of such interest from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Original Issue Discount. The “original issue discount” (“OID”) on any Bond is the excess of such bond’s stated redemption price at maturity (excluding certain "qualified stated interest" that is unconditionally payable at least annually at prescribed rates) over the issue price of such bond. The “issue price” of a Bond is the initial offering price to the public at which price a substantial amount of such bonds of the same maturity was sold. The “public” does not include bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. The issue price for each maturity of the Bonds is expected to be the initial public offering price set forth on the inside cover page of this Official Statement, but is subject to change based on actual sales. OID on the Bonds with OID (the “OID Bonds”) represents interest that is excludable from gross income for purposes of federal and Virginia income taxation. However, the portion of the OID that is deemed to have accrued to the owner of an OID Bond in each year may be included in determining the alternative minimum tax with respect to the 2009B Bonds and the distribution requirements of certain investment companies and may result in some of the collateral federal income tax consequences mentioned in the preceding subsection. Therefore, owners of OID Bonds should be aware that the accrual of OID in each year may

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result in alternative minimum tax liability, additional distribution requirements or other collateral federal and Virginia income tax consequences although the owner may not have received cash in such year. Interest in the form of OID is treated under Section 1288 of the Code as accruing under a constant yield method that takes into account compounding on a semiannual or more frequent basis. If an OID Bond is sold or otherwise disposed of between semiannual compounding dates, then the OID which would have accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. In the case of an original owner of an OID Bond, the amount of OID that is treated as having accrued on such OID Bond is added to the owner’s cost basis in determining, for federal income tax purposes, gain or loss upon its disposition (including its sale, redemption or payment at maturity). The amounts received upon such disposition that are attributable to accrued OID will be excluded from the gross income of the recipients for federal income tax purposes. The accrual of OID and its effect on the redemption, sale or other disposition of OID Bonds that are not purchased in the initial offering at the initial offering price may be determined according to rules that differ from those described above. Prospective purchasers of OID Bonds should consult their own tax advisors with respect to the precise determination for federal income tax purposes of interest accrued upon sale or redemption of such OID Bonds and with respect to state and local tax consequences of owning OID Bonds. Bond Premium. In general, if an owner acquires a bond for a purchase price (excluding accrued interest) or otherwise at a tax basis that reflects a premium over the sum of all amounts payable on the bond after the acquisition date (excluding certain “qualified stated interest” that is unconditionally payable at least annually at prescribed rates), that premium constitutes “bond premium” on that bond (a “Premium Bond”). In general, under Section 171 of the Code, an owner of a Premium Bond must amortize the bond premium over the remaining term of the Premium Bond, based on the owner’s yield over the remaining term of the Premium Bond, determined based on constant yield principles. An owner of a Premium Bond must amortize the bond premium by offsetting the qualified stated interest allocable to each interest accrual period under the owner’s regular method of accounting against the bond premium allocable to that period. In the case of a tax-exempt Premium Bond, if the bond premium allocable to an accrual period exceeds the qualified stated interest allocable to that accrual period, the excess is a nondeductible loss. Under certain circumstances, the owner of a Premium Bond may realize a taxable gain upon disposition of the Premium Bond even though it is sold or redeemed for an amount less than or equal to the owner’s original acquisition cost. Prospective purchasers of any Premium Bonds should consult their own tax advisors regarding the treatment of bond premium for federal income tax purposes, including various special rules relating thereto, and state and local tax consequences, in connection with the acquisition, ownership, amortization of bond premium on, sale, exchange, or other disposition of Premium Bonds. Possible Legislative or Regulatory Action. Legislation and regulations affecting tax-exempt bonds are continually being considered by the United States Congress, the U.S. Department of the Treasury (“Treasury”) and the IRS. In addition, the IRS has established an expanded audit and enforcement program for tax-exempt bonds. There can be no assurance that legislation enacted or proposed after the date of issue of the Bonds or an audit initiated or other enforcement or regulatory action taken by the Treasury or the IRS involving either the Bonds or other tax-exempt bonds will not have an adverse effect on the tax status or the market price of the Bonds or on the economic value of the tax-exempt status of the interest thereon.

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Virginia Tax Matters Bond Counsel's opinion also will state that, under current law, interest on the Bonds is excludable from the gross income of the owners thereof for purposes of income taxation by the Commonwealth. Bond Counsel will express no opinion regarding (i) other Virginia tax consequences arising with respect to the Bonds or (ii) any consequences arising with respect to the Bonds under the tax laws of any state or local jurisdiction other than Virginia. Prospective purchasers of the Bonds should consult their own tax advisors regarding the tax status of interest on the Bonds in a particular state or local jurisdiction other than Virginia.

PENDING LITIGATION The City, in the course of doing business, has been named as defendant in certain personal injury cases and suits for property damage. These suits are being defended by the City Attorney and associated independent counsel retained by the City Attorney, and it is the opinion of the City Attorney that any possible losses in connection with the above pending litigation will not materially and adversely affect the City’s financial condition. The City Attorney is also of the opinion that the above pending litigation will not affect the validity of the Bonds or the ability of the City to levy and collect ad valorem taxes for the payment of the Bonds or the interest thereon. There is no pending litigation with respect to the Bonds or the ability of the City to levy and collect ad valorem taxes for the payment of such Bonds or the premium, if any, or interest thereon.

RATINGS The City has requested that the Bonds be rated and has furnished certain information to the rating agencies including information that may not be included in this Official Statement. The 2009A Bonds and the 2009B have been rated ‘A1’ by Moody’s Investors Service, Inc. (“Moody’s”), ‘AA’ by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (“Standard & Poor’s”) and ‘AA’ by Fitch Ratings (“Fitch”). The 2009C Note has been rated ‘MIG-1’ by Moody’s and ‘SP1+’ by Standard & Poor’s. The ratings reflect only the views of the respective rating agency. Any explanation of the significance of the ratings may be obtained only from the respective rating agency. Generally, rating agencies base their ratings upon information and materials provided to them and upon investigations, studies and assumptions by the rating agencies. There is no assurance that such ratings will not be withdrawn or revised downward by Moody’s, Standard & Poor’s or Fitch. Such action may have an adverse effect on the market price of the Bonds. The City has not undertaken any responsibility after the issuance of the Bonds to assure maintenance of the ratings or to oppose any such revision or withdrawal.

FINANCIAL STATEMENTS

The City’s audited general purpose financial statements for the fiscal year ended June 30, 2008, are published in Appendix A with accompanying notes. In addition, Appendix A also includes a report of the City’s independent accountants.

CERTIFICATES OF CITY OFFICIALS Concurrently with the delivery of the Bonds, the City will furnish (1) a certificate, dated the date of delivery of the Bonds, signed by the officers who sign the Bonds, stating that, to the best of their knowledge, no litigation is then pending or threatened to restrain or enjoin the issuance or delivery of the Bonds or the levy or collection of taxes to pay principal, premium, if any, or interest thereon or in any manner questioning the proceedings and authority under which the Bonds are issued and (2) a certificate dated the date of delivery of the Bonds signed by the appropriate City officials and stating that the descriptions and statements in this Official Statement including the Appendices hereto (except in the

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section entitled “Pending Litigation” or relating to DTC) at the time of acceptance of the proposal for the Bonds and at the date of delivery were and are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The City Attorney will furnish, concurrently with the delivery of the Bonds, a certificate dated the date of delivery of the Bonds stating that no litigation is pending or, to the best of his knowledge, threatened against the City either (1) to restrain or enjoin the issuance or delivery of the Bonds, (2) to question in any manner the authority of the City to issue or the issuance of the Bonds, or the validity of any proceedings authorizing the Bonds or the levy or collection of taxes to pay the Bonds or (3) to question in any manner the boundaries of the City or the title of any officers of the City to their respective offices.

FINANCIAL ADVISOR The City has retained Public Financial Management, Inc. of Arlington, Virginia (“PFM”), as Financial Advisor in connection with the issuance and sale of the Bonds. Although PFM has assisted in the preparation of this Official Statement, PFM is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Preliminary Official Statement. PFM is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities.

SALE AT COMPETITIVE BIDDING

The 2009A Bonds and the 2009C Note were sold at competitive biddings on May 12, 2009, to Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc., respectively. The 2009B Bonds were sold at competitive bidding on May 13, 2009, to BB&T Capital Markets, a division of Scott & Stringfellow, Inc. The underwriters have supplied the information as to the interest rates and offering prices or yield of the Bonds as set forth on the inside cover of this Official Statement. If all of the Bonds are resold to the public at such offering prices or yields, the underwriters have informed the City that they anticipate a total underwriting compensation of $828,910.83 for the 2009A Bonds, $66,146.52 for the 2009B bonds and $2,682.60 for the 2009C Note.

CONTINUING DISCLOSURE The City will execute and deliver to the purchasers of the Bonds a Continuing Disclosure Agreement, the form of which is set forth as Appendix C to this Official Statement, pursuant to which the City will covenant and agree, for the benefit of the Holders of the Bonds to provide certain annual financial information and material event notices required by Rule 15c2-12 of the Securities and Exchange Commission (the “Rule”). As described in Appendix C, such undertaking requires the City to provide only limited information at specified times. The continuing obligation of the City to provide annual financial information and notices referred to above will terminate with respect to the Bonds when the Bonds are no longer outstanding. Any failure by the City to comply with the foregoing will not constitute a default with respect to the Bonds. The City has been in compliance with the requirements of the Rule over the past five years.

MISCELLANEOUS This Official Statement and any advertisement of the Bonds are not to be construed as a contract with the purchasers of the Bonds. Any statement made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly identified, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.

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The references herein to and summaries of Federal, Commonwealth and City laws, including but not limited to the Constitution of the Commonwealth, the Virginia Code, the City Charter and documents, agreements and court decisions are summaries of certain provisions thereof. Such summaries do not purport to be complete and are qualified in their entirety by reference to such acts, laws, documents, agreements or decisions, copies of which are available for inspection during normal business hours at the office of the City Attorney. Any questions concerning the content of this Official Statement should be directed to the City’s Acting Director of Finance, 810 Union Street Suite 600 City Hall Building, Norfolk, Virginia 23510, (757) 664-4346. The distribution of this Preliminary Official Statement has been duly authorized by the City which has deemed this Preliminary Official Statement final within the meaning of the Rule, except for the omission of certain pricing and other information permitted to be omitted by the Rule. CITY OF NORFOLK, VIRGINIA

/s/ Regina V.K. Williams

______________________________ City Manager /s/ Alice M. Kelly

_________________________________ Acting Director of Finance

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PART II CITY INDEBTEDNESS

Limitation on Incurrence of Debt Pursuant to the Constitution of Virginia (the “Constitution”), the City is authorized to issue bonds and notes secured by a pledge of its full faith and credit and unlimited taxing power. There is no requirement in the Constitution, the Virginia Code or the City Charter that the issuance of general obligation bonds of the City be subject to approval of the electors of the City at referendum. The issuance of general obligation bonds is subject to a limitation of 10% of the assessed value of taxable real property. At June 30, 2008, the total assessed value of taxable real property in the City was $18,401,541,069. Based on Virginia’s constitutional debt limitation formula, this resulted in a debt limit of $1,840,185,107. As presented in Table II-1 below, the City’s outstanding general obligation bonds and other tax-secured indebtedness as of June 30, 2008, is $697,450,234 representing 37.90% of the constitutional debt limit.

Table II-1 City of Norfolk, Virginia

Computation of Legal Debt Margin June 30, 2008

Total assessed value of taxable real property $ 18,401,541,069

Debt Limit-10 percent of total assessed value 1,840,185,107

Outstanding General Obligation Debt (1) (2) (3) (4) (5) (6) 697,450,234

Legal Debt Margin $ 1,142,734,873

Amount of debt as a percent of debt limit 37.90%

Source: Department of Finance, City of Norfolk, Virginia.

Notes:

(1) Defeased bonds are not included in gross debt. Funds to redeem these bonds have been irrevocably deposited with an escrow agent.

(2) Reflects only bonded debt and does not include the City’s capital lease obligations. See Table II-8 for information about the City’s capital lease obligations.

(3) The amount of general obligation bonds authorized by ordinance for Capital Improvement Projects, but not yet issued is $111,234,258.

(4) Water Revenue Bonds and Parking System Revenue Bonds are excluded from gross debt, since these bonds are payable solely from the revenue of their respective enterprise activities.

(5) Includes the remaining balance of $2,220,000 on a general obligation guaranty of $3,300,000 of bonds issued by Norfolk Redevelopment and Housing Authority in August 1998. The bonds mature on August 15, 2015.

(6) Includes the 20-year $13,000,000 Section 108 Loan with HUD supported by the Broad Creek Renaissance TIF District, which matures on August 1, 2023.

Debt Outstanding The tables that follow detail the City’s current general obligation debt outstanding. Table II-2 presents the City’s gross and net outstanding tax-supported and self-supporting general obligation bonded indebtedness as of June 30, 2008. Table II-3 provides a comparative statement of key debt ratios for the past ten fiscal years and Table II-4 presents the rate of retirement for all general obligation bonds as of June 30, 2008. Table II-5 presents the recent historical relationship between debt service on bonds paid

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from actual general governmental expenditures for the past ten fiscal years. Table II-6 presents the historical relationship of the City’s net bonded debt to assessed value of taxable real property and net bonded debt per capita. Table II-7 provides a statement of future annual debt service requirements on the City’s existing general obligation bonds.


General Obligation Debt Statement (1) (2) (3)


Notes: (1) The amount of general obligation bonds authorized by ordinance, but not yet issued, for Capital Improvement Projects

is $111,234,258. (2) Water Revenue Bonds and Parking System Revenue Bonds are excluded from enterprise fund debt, since these bonds

are payable solely from the revenue of their respective enterprise activities. (3) Reflects only bonded debt and does not include the City’s capital lease obligations. See Table II-8 for information

about the City’s capital lease obligations. (4) Defeased bonds are not included in gross debt. Funds to redeem these bonds have been irrevocably deposited with an

escrow agent. (5) Includes the bonded debt of the Environmental Storm Water Fund and the Towing and Recovery Fund, which are both

special revenue funds. (6) Includes the remaining balance of $2,220,000 on a general obligation guaranty of $3,300,000 of bonds issued by

Norfolk Redevelopment and Housing Authority in August 1998. The bonds mature on August 15, 2015. (7) There are no overlapping or underlying taxing jurisdictions in the City. (8) Includes the 20-year $13,000,000 Section 108 Loan with HUD supported by the Broad Creek Renaissance TIF District,

which matures on August 1, 2023.

Projected as of June 30, 2008

A. General Fund Bonds Outstanding Debt (4) (5) (6) (7) (8) $ 552,091,918

B. Enterprise Fund Bonds Outstanding Debt (2) 145,250,375

C. Total General Obligation Bond Indebtedness Outstanding Debt (A+B) $ 697,342,293

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Key Debt Trends Fiscal Years Ended June 30, 1999 – 2008

_________ Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008.

Notes: (1) There are no overlapping or underlying taxing jurisdictions in the City.

(2) Debt payable from Enterprise Fund revenue can be found in Table II-6.

(3) The defeased portions of bonds are not included in Gross Bonded Debt. Unamortized premium/discount is not included in Gross Bonded Debt.

(4) Gross Bonded Principal Outstanding Per Capita is based on the population figures from Table II-6.

(5) Based on the taxable real property assessed value figures from Table III-2.

Fiscal Year Ended June 30

Gross Bonded Debt (in thousands) (1) (2)

(3)

Gross Bonded Principal

Outstanding Per Capita (4)

Percent of Gross Bonded Debt to Real Property

Assessed Value (5)

1999 $ 508,805 $ 2,170 6.41%2000 $ 488,352 $ 2,083 6.03%2001 $ 468,445 $ 2,002 5.54%2002 $ 460,346 $ 1,971 5.18%2003 $ 460,876 $ 1,970 4.93%2004 $ 486,242 $ 2,067 4.85%2005 $ 512,528 $ 2,180 4.68%2006 $ 475,872 $ 2,032 3.75%2007 $ 576,809 $ 2,444 3.70%2008 $ 695,230 n/a 3.28%

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Table II-4

City of Norfolk, Virginia Principal Retirement

All General Obligation Bonds As of June 30, 2008

_________ Source: Department of Finance, City of Norfolk, Virginia.

Table II-5

City of Norfolk, Virginia Ratio of Annual Debt Service to

Total General Governmental Expenditures Fiscal Years Ended June 30, 1999 – 2008

__________ Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008. Notes: (1) Includes debt service on general obligation bonds and capital leases payments supported by the General

Fund. (2) Total general expenditures are presented using the modified accrual basis of accounting.

Maturing By Fiscal Year End

Cumulative Amount Matured

Percent of Principal Retired

2013 $ 269,189,709 38.60%2018 $ 446,914,062 64.09%2023 $ 588,738,122 84.43%2033 $ 677,692,293 97.13%2038 $ 688,227,293 98.69%2028 $ 697,342,293 100.00%

Fiscal Ye ar Ende d June 30

Total De bt Se rvice (1)

Total Ge ne ral Expe nditure s (2)

Pe rce nt of De bt Se rvice To Total

Ge ne ral Expe nditure s

1999 $ 49,744,700 $ 519,198,080 9.58%2000 $ 52,627,625 $ 558,439,186 9.42%2001 $ 55,926,535 $ 578,776,772 9.66%2002 $ 53,484,013 $ 431,283,578 12.40%2003 $ 53,258,272 $ 451,633,988 11.79%2004 $ 55,000,425 $ 490,944,275 11.20%2005 $ 58,971,773 $ 490,923,834 12.01%2006 $ 62,750,385 $ 510,999,836 12.28%2007 $ 58,045,527 $ 539,491,519 10.76%2008 $ 64,167,472 $ 574,581,092 11.17%

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Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per Capita

Fiscal Years Ended June 30, 1999 - 2008

Source: The source of calendar year population estimates for 1999 and 2001 through 2008 is the Weldon Cooper Center for Public Service, University of Virginia. The source for the population figure for 2000 is the United States Census.


Estimated Population

Assessed Value of Taxable Property (In Thousands) Gross Bonded Debt

Debt Payable from Enterprise Revenue Net Bonded Debt

Ratio of Net Bonded Debt to Assessed Value

Net Bonded Debt Per Capita

1999 234,500 $ 9,054,436 $ 508,805,001 $ 141,668,034 $ 367,136,967 4.05% $ 1,566 2000 234,403 $ 9,325,039 $ 488,351,541 $ 128,007,237 $ 360,344,303 3.86% $ 1,537 2001 234,000 $ 9,728,084 $ 468,445,246 $ 114,528,097 $ 353,917,150 3.64% $ 1,512 2002 233,600 $ 10,204,892 $ 460,345,861 $ 112,049,824 $ 348,296,037 3.41% $ 1,491 2003 233,900 $ 10,742,268 $ 460,876,270 $ 99,220,319 $ 361,655,951 3.37% $ 1,546 2004 235,200 $ 11,483,300 $ 486,241,680 $ 87,635,923 $ 398,605,757 3.47% $ 1,695 2005 235,071 $ 12,439,004 $ 512,528,634 $ 91,085,187 $ 421,008,476 3.38% $ 1,791 2006 234,219 $ 14,332,318 $ 475,872,461 $ 93,099,000 $ 382,773,000 2.67% $ 1,634 2007 235,915 $ 17,306,281 $ 576,809,191 $ 107,310,741 $ 469,498,450 2.71% $ 1,990 2008 235,092 $ 21,227,708 $ 695,230,236 $ 124,092,071 $ 571,138,165 2.69% $ 2,429

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Table II – 7 City of Norfolk, Virginia

Long-Term Debt Service Requirements (1)

Fiscal Year Ended June 30 Principal Interest Total Debt Service Principal Interest Total Debt Service Principal Interest Total Debt Service

2009 $ 59,710,614 $ 29,199,627 $ 88,910,241 $ - $ - $ - $ 59,710,614 $ 29,199,627 $ 88,910,241 2010 56,577,813 27,200,170 83,777,983 44,710,000 2,656,619 47,366,619 101,287,813 29,856,789 131,144,602 2011 50,311,808 25,023,506 75,335,314 10,615,000 2,491,188 13,106,188 60,926,808 27,514,694 88,441,502 2012 46,027,449 22,676,995 68,704,444 10,515,000 2,189,188 12,704,188 56,542,449 24,866,183 81,408,632 2013 44,557,025 20,439,155 64,996,180 4,615,000 2,008,138 6,623,138 49,172,025 22,447,293 71,619,318 2014 35,866,894 18,505,877 54,372,771 5,800,000 1,887,588 7,687,588 41,666,894 20,393,465 62,060,359 2015 38,529,115 14,316,158 52,845,273 5,780,000 1,711,000 7,491,000 44,309,115 16,027,158 60,336,273 2016 34,812,229 15,175,623 49,987,852 4,215,000 1,533,038 5,748,038 39,027,229 16,708,661 55,735,890 2017 31,848,557 13,626,830 45,475,387 4,240,000 1,377,381 5,617,381 36,088,557 15,004,211 51,092,768 2018 30,082,558 12,204,116 42,286,674 3,480,000 1,221,625 4,701,625 33,562,558 13,425,741 46,988,299 2019 29,764,109 10,842,145 40,606,254 3,475,000 1,070,000 4,545,000 33,239,109 11,912,145 45,151,254 2020 29,908,227 9,507,232 39,415,459 2,225,000 949,750 3,174,750 32,133,227 10,456,982 42,590,209 2021 27,913,886 8,167,726 36,081,612 2,225,000 860,750 3,085,750 30,138,886 9,028,476 39,167,362 2022 27,173,269 6,947,132 34,120,401 2,225,000 771,750 2,996,750 29,398,269 7,718,882 37,117,151 2023 25,714,570 5,759,765 31,474,335 2,225,000 682,750 2,907,750 27,939,570 6,442,515 34,382,085 2024 24,398,852 4,651,181 29,050,033 2,220,000 593,850 2,813,850 26,618,852 5,245,031 31,863,883 2025 19,919,395 3,686,152 23,605,547 2,220,000 505,050 2,725,050 22,139,395 4,191,202 26,330,597 2026 16,890,424 2,833,507 19,723,931 2,220,000 416,250 2,636,250 19,110,424 3,249,757 22,360,181 2027 16,417,159 2,112,847 18,530,006 2,220,000 327,450 2,547,450 18,637,159 2,440,297 21,077,456 2028 11,328,341 1,499,484 12,827,825 2,220,000 237,263 2,457,263 13,548,341 1,736,747 15,285,088 2029 1,290,000 974,695 2,264,695 2,220,000 144,300 2,364,300 3,510,000 1,118,995 4,628,995 2030 1,355,000 906,196 2,261,196 2,220,000 48,563 2,268,563 3,575,000 954,759 4,529,759 2031 1,425,000 832,875 2,257,875 - - - 1,425,000 832,875 2,257,875 2032 1,495,000 756,820 2,251,820 - - - 1,495,000 756,820 2,251,820 2033 4,970,000 522,061 5,492,061 - - - 4,970,000 522,061 5,492,061 2034 1,650,000 407,466 2,057,466 - - - 1,650,000 407,466 2,057,466 2035 1,730,000 318,409 2,048,409 - - - 1,730,000 318,409 2,048,409 2036 1,820,000 225,098 2,045,098 - - - 1,820,000 225,098 2,045,098 2037 1,910,000 126,255 2,036,255 - - - 1,910,000 126,255 2,036,255 2038 2,005,000 23,474 2,028,474 - - - 2,005,000 23,474 2,028,474

Totals $ 677,402,294 $ 259,468,577 $ 936,870,871 $ 121,885,000 $ 23,683,488 $ 145,568,488 $ 799,287,294 $ 381,353,577 $ 1,082,439,359

Total Debt (2) (3)Plus the Bonds(4)Existing General Obligation Debt Service (2) (3) (4)


Notes: (1) Figures may not sum due to rounding. (2) Includes principal payable from the City’s enterprise funds. (3) Existing General Obligation Debt Service includes self-supporting principal payable from the City’s Environmental Storm Water Fund, a special revenue fund. (4) Includes estimated net debt service on the City’s General Obligation Variable Rate Demand Bonds, Series 2007, assuming an average interest rate of 3.74%.

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Debt Incurred by Other Governmental Entities Overlapping Debt The City is autonomous from any county, town or other political subdivision. There are no overlapping or underlying taxing jurisdictions with debt outstanding for which City residents are liable. Short-Term Borrowing The City has not borrowed on a short-term basis for working capital purposes in the past five fiscal years. Capital Lease Obligations The City leases certain computer, automotive, solid waste automation and other heavy equipment, which are recorded at a cost of $3,419,866. No additions to Capital Leases were recorded in the fiscal year ended June 30, 2008. The remaining debt service requirements will be retired by funds from the General Fund on the aforementioned contracts as summarized in Table II-8.

Table II - 8

City of Norfolk Capital Lease Obligations

_______ Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008. Water Revenue Bonds Since 1993, and for all future financings, capital improvements of the Water Utility System are anticipated to be financed with revenue bonds. The revenue covenant for these revenue bonds requires the City to establish, fix, charge and collect rates, fees and other charges for the use of and for the services furnished by the water system, and will, from time to time and as often as appears necessary, revise such rates, fees and other charges, so that in each fiscal year net revenues are not less than the greater of (i) the sum of 1.1 times senior debt service and 1.0 times subordinated debt service for the fiscal year and (ii) 1.0 times the funding requirements for transfers from the revenue fund to the operating fund, the bond fund, the parity debt service fund, the debt service reserve fund, the subordinate debt service fund and the repair and replacement reserve fund. Fiscal year ended June 30, 2008 results reflect compliance with this requirement.

Fiscal Year Ending June 30

Capital Lease Obligations

2009 $ 1,845,478 2010 1,175,523 2011 398,865

Total minimum lease payments

Less interest (126,723) 3,546,589

Less current portion (1,758,251)$ 1,534,893

$ 3,419,866

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Parking System Revenue Bonds Since 1997, capital improvements of the Parking Facilities Fund have been financed with revenue bonds. The revenue covenant for these revenue bonds requires the City to establish, fix, charge and collect rates, fees and other charges for the use of and for the services furnished by the parking facilities, and will, from time to time and as often as appears necessary, revise such rates, fees and other charges, so that in each fiscal year net revenues are not less than the greater of (i) the sum of 1.25 times senior debt service and 1.0 times subordinated debt service for the fiscal year and (ii) 1.0 times the funding requirements for transfers from the revenue fund to the bond fund, the parity debt service fund, the debt service reserve fund, the MacArthur Garage reserve fund, the repair and replacement reserve fund, the surety bond interest fund and the subordinate debt service fund. Fiscal year ended June 30, 2008 results reflect compliance with this requirement. Debt History The City has never defaulted in the payment of either principal of, or interest on, any indebtedness. Capital Improvement Program Budget The City has a Capital Improvement Program (CIP) Budget which plans for capital type improvements for a five-year period. This CIP Budget is reviewed and revised annually. The City approved its fiscal year ended June 30, 2009 CIP Budget on May 22, 2008. The total of the CIP Budget for fiscal year ended June 30, 2009 is $176,049,310. This includes a $16,803,863 transfer from the fiscal year ended June 30, 2009 Operating Budget, which reduces the City’s reliance on bond financing. Five years of CIP activities have been planned in the approved fiscal years ended June 30, 2009 – 2013 CIP. Future year projects in the CIP Budget are considered for planning purposes only and may be modified, at any time, by the City Council. In addition, the CIP Budget is used by the City as a means of identifying short- and long-term needs and as a guide for identifying various funding sources for future CIP Budgets. The CIP Budget is developed in coordination with and at the same time as other City budgets. It is prepared for submission by the City Manager to the City Council concurrently with the Proposed Operating Budget. Hearings are held as appropriate, and the final CIP Budget is adjusted with a determination being made of the source and amount of funding to be recommended for each item. The fiscal year ended June 30, 2009 CIP Budget is summarized in Table II-9. Table II-10 summarizes the CIP for fiscal years ended June 30, 2009 – 2013. On April 7, 2009, the City Manager presented a proposed CIP Budget for the fiscal year ended June 30, 2010. City Council adopted this budget, which totals $160,393,568 on May 19, 2009.

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Table II-9

City of Norfolk, Virginia Capital Improvement Program for Fiscal Year Ended June 30, 2009

________ Source: Capital Improvement Program Budget, Fiscal Year Ended June 30, 2009.

UsesApproved Budget

FY–2009

General Capital Projects $ 124,189,310 Parking Fund Projects 1,010,000 Storm Water Fund Projects 3,500,000 Water Fund Projects 30,350,000 Wastewater Fund Projects 16,500,000 Towing and Recovery Fund Projects 500,000

Total Capital Program $ 176,049,310

Appropriation Source

General Capital Projects From Bond Issue $ 108,445,447 From Cash 15,743,863

Parking Fund Projects From Bond Issue 600,000 From Parking Facilities Cash 410,000

Storm Water Fund Projects From Bond Issue 3,500,000

Water Fund Projects From Bond Issue 29,700,000 From Water Fund Cash 650,000

Wastewater Fund Projects From Bond Issue 16,500,000

Towing and Recovery Fund Projects From Bond Issue 500,000

Total Capital Program $ 176,049,310

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Capital Improvement Program Fiscal Years Ended June 30, 2009 through 2013

Source: Capital Improvement Program Budget, Fiscal Year Ended June 30, 2009.

Description FY-2009 Budget FY-2010 Plan FY-2011 Plan FY-2012 Plan FY-2013 PlanFY 2009 – 2013

Total

General Capital Schools $ 500,000 $ 15,200,000 $ 15,200,000 $ 2,500,000 $ 2,500,000 $ 35,900,000 Non-Schools 123,689,310 144,561,844 95,818,370 36,211,470 31,262,470 431,543,464 Total General Capital 124,189,310 159,761,844 111,018,370 38,711,470 33,762,470 467,443,464

Storm Water Fund 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 17,500,000

Parking Facilities Fund 1,010,000 960,000 600,000 600,000 600,000 3,770,000

Wastewater Fund 16,500,000 16,500,000 16,500,000 16,500,000 16,500,000 82,500,000

Water Fund 30,350,000 6,450,000 12,500,000 7,930,000 4,352,000 61,582,000

Towing and Recovery Fund 500,000 - - - - 500,000

Total Capital Program $ 176,049,310 $ 187,171,844 $ 144,118,370 $ 67,241,470 $ 58,714,470 $ 633,295,464

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PART III

FINANCIAL INFORMATION

Fiscal Year

The City’s fiscal year commences July 1 and closes on June 30.

Reporting Entity

For financial reporting purposes, in accordance with generally accepted accounting principles (GAAP), the City’s financial statements include the City of Norfolk (primary government) and its component units.

• The School Board of the City of Norfolk • The Employees’ Retirement System of the City of Norfolk (ERS) • The Norfolk Community Services Board (NCSB)

Complete financial statements of the individual component units can be obtained from their respective administrative offices. Contact information for such administrative offices can be obtained through contacting the office of the Director of Finance of the City.

BASIS OF ACCOUNTING AND ACCOUNTING STRUCTURE

The City’s financial statements include the following sections:

• Management’s Discussion and Analysis (MD&A). - The MD&A introduces the basic financial statements and provides an

analytical overview of the government’s financial activities.

• Basic Financial Statements. The Basic Financial Statements include: - Government-wide financial statements, consisting of a statement of net assets

and a statement of activities; - Fund financial statements consisting of a series of statements that focus on

information of the government's major governmental, enterprise and fiduciary funds and component units; and

- Notes to the financial statements provide information essential to a user's understanding of the basic financial statements.

• Required Supplementary Information (“RSI”). In addition to MD&A, budgetary comparison schedules are presented as RSI along with other types of data as required by the Government Accounting Standard Board (“GASB”).

The government-wide financial statements are reported using the economic resources measurement

focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

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Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenue and related assets are recorded when they become both measurable and available. Revenues are considered to be available when they are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City generally considers revenues, except for grant revenues, to be available if they are collected within 60 days of the end of the fiscal year. Property taxes due and collected within 45 days after year-end are recognized as revenue: those not collected within 45 days after year-end are reported as deferred revenue when received. Expenditures generally are recorded when a liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded when payment is due.

INDEPENDENT ACCOUNTANTS Section 99 of the City Charter requires that “...as soon as practicable after the close of each fiscal year an annual audit shall be made of all the accounts of the city offices...by certified public accountants selected by the council...” The firm of KPMG LLP served as the City’s independent auditors. The audited general purpose financial statements for the fiscal year ended June 30, 2008, are published in Appendix A with accompanying notes.

BUDGETARY PROCESS The City Charter requires that no less than 60 days before the end of the fiscal year, the City Manager must submit to the City Council a proposed balanced operating budget for the ensuing fiscal year that commences July 1. The Public Schools’ proposed budget is approved by the School Board, transmitted to the City Manager for review and then submitted to the City Council for consideration as part of the City’s general operating budget. The City Council is required to hold a public hearing on the budget at which time all interested persons have the opportunity to comment. The financial forecast, the first step in the budget process, is an essential component of the annual process of assessing the City’s overall financial condition and looking at its finances in a multi-year context. The primary objective of the financial forecast is to project where current budget decisions lead in terms of future revenue and expenditures and their impact on the City’s financial stability. This, therefore, provides the opportunity to proactively evaluate policies with the goal of maximizing opportunities or, in the worst case, minimizing the negative impact of economic downturns.

GENERAL GOVERNMENTAL REVENUE Overview General governmental revenue is derived from general property taxes, other local taxes, permits, privilege fees and regulatory licenses, fines and forfeitures, use of money and property, charges for services, recovered costs and non-categorical aid, shared expenses and categorical aid from the Commonwealth. General Fund disbursements include the normal recurring activities of the City, such as police, public works, general government, transfers to the School Operating Fund for local share of costs and to the Debt Service Fund to pay principal and interest on the City’s general obligation bonds for other than enterprise fund purposes. Property Tax Rates, Levies and Collections An annual ad valorem tax is levied by the City on the assessed value of real property located within the City as of July 1, and on tangible personal property located within the City as of January 1. Real property taxes are the largest single source of tax revenue. Tax rates are applied to the assessed valuation of property. The ratio of the assessed value of real property to its estimated fair market value is 100% (other than public service properties). The City taxes several categories of personal property, each of which is assessed on a different basis. Machinery and tools are assessed at 100% of original cost; vehicles and

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boats are assessed at 100% of certain published loan values; and mobile homes are assessed on the same basis as real property. The City has the power to levy taxes on property located within its boundaries without limitation as to rate or amount for the payment of its obligations. Rates are established by the City Council. The tax rates approved in the fiscal year ended June 30, 2009 budget, on each $100 of assessed value, which remain unchanged from the previous fiscal year, are: $1.50 for recreational vehicles; $2.40 for airplanes; $1.11 for real property; $4.25 for personal property; $4.25 for machinery and tools; and $1.11 for mobile homes. The rate on personal recreational boats consists of a decal fee of $10 or $25, depending on the length of the boat plus a tax of fifty cents per $100 on the assessed value of the boat. The tax rate for commercial boats is $1.50 per $100 of the assessed value of the boat and a boat decal is not required. The tax rate for real property located in the City’s Business Improvement District is an additional $0.18 on the real property rate of $1.11 per $100 of assessed value. Real property levies are payable during the year of assessment in four equal installments, on or before September 30, December 5, March 31 and June 5. Personal property, recreational vehicles, machinery and tools, mobile homes, airplanes and boat levies are payable on or before June 5 of the year assessed or thirty days after acquisition. Certain types of personal property such as automobiles, trucks, motorcycles, trailers and recreational vehicles are prorated throughout the year and payable 30 days after acquisition. In the event any installment of taxes on any of the properties listed above is not paid on or before the due date, penalties and interest are assessed in accordance with the City Code. The City Council may require the sale of real property in satisfaction of delinquent taxes, pursuant to the provisions of Section 89 of the City Charter. Other Revenue Sources The City levies various other local taxes: (1) a 1% local sales tax (collected by the Commonwealth and remitted to the City); (2) a tax on water, electric and gas utility bills; (3) a cigarette tax of 65 cents per packet; (4) property transfer recordation taxes; (5) an automobile license tax; (6) various business license/franchise taxes; (7) a hotel and motel tax of 8% and a $1 per room, per night surcharge of which 1% is dedicated to tourism and economic development; (8) an admissions tax of 10%; and (9) a restaurant food tax of 6.5%, which includes alcoholic beverages of which 1% is dedicated to tourism and economic development. Fees, Licenses and Permits - The City requires that licenses or permits be obtained for the performance of certain activities and that fees be paid for services provided by certain City departments. Revenue from the Commonwealth of Virginia - The City receives payments for highway maintenance, a share of the net profits from the State Alcoholic Beverage Control Board liquor sales, a share of state sales taxes allocated for education and, in addition, reimbursement for a portion of certain shared expenses relating to expenditures for such functions as Sheriff’s office, Commissioner of the Revenue, City Treasurer, Clerk of the Circuit Court and Commonwealth’s Attorney office. The City also receives categorical aid revenue for such purposes as public assistance, education and local law enforcement. Other Revenue - The primary sources of other revenue to the General Fund include transfers from the Water Utility and Wastewater Utility Funds, interest on investments and impact aid from the federal government. Tables III-1A and III-1B show the City’s General Fund revenue by source for each of the last ten fiscal years.

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Table III-1A City of Norfolk, Virginia

Total Revenue by Source, Governmental Funds Fiscal Years Ended June 30, 1999 – 2008

(Amounts in Thousands)

Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008.


General Property

TaxesOther Local

TaxesPermits and

LicensesFines and Forfeitures

Use of Money and Property

Charges for Services Miscellaneous

Recovered Costs

Inter-Governmental

1999 $ 147,831 $ 111,212 $ 2,505 $ 1,920 $ 8,785 $ 19,658 $ 18,621 $ 11,139 $ 107,896 2000 $ 152,062 $ 119,107 $ 2,943 $ 1,661 $ 10,275 $ 18,836 $ 13,990 $ 12,338 $ 133,526 2001 $ 153,366 $ 126,537 $ 2,601 $ 1,684 $ 11,361 $ 18,745 $ 13,681 $ 14,135 $ 122,677 2002 $ 159,512 $ 127,262 $ 2,700 $ 1,541 $ 11,247 $ 18,312 $ 12,337 $ 10,008 $ 133,332 2003 $ 168,893 $ 132,847 $ 2,973 $ 1,569 $ 8,791 $ 29,390 $ 24,785 $ 9,556 $ 131,071 2004 $ 178,361 $ 140,675 $ 3,204 $ 1,627 $ 8,333 $ 31,342 $ 17,339 $ 12,297 $ 160,118 2005 $ 193,293 $ 150,477 $ 3,542 $ 1,763 $ 10,232 $ 29,129 $ 18,951 $ 14,188 $ 147,045 2006 $ 211,788 $ 157,616 $ 4,088 $ 1,461 $ 10,498 $ 32,772 $ 33,494 $ 12,667 $ 149,757 2007 $ 235,399 $ 159,119 $ 4,071 $ 1,605 $ 11,105 $ 37,071 $ 11,691 $ 8,408 $ 156,637 2008 $ 241,290 $ 162,573 $ 4,055 $ 1,317 $ 10,651 $ 40,070 $ 17,923 $ 8,622 $ 156,862

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Table III-1B City of Norfolk, Virginia

Other Local Tax Revenues by Source, Governmental Funds Fiscal Years Ended June 30, 1999 – 2008

(Amounts in Thousands)



Sales and Use Taxes

Consumer’s Utility Taxes

Business License Taxes

Motor Vehicle Licenses

Cigarette Taxes

Restaurant Food Taxes Other Total

1999 $ 22,602 $ 33,189 $ 15,932 $ 3,308 $ 4,918 $ 15,677 $ 15,586 $ 111,212 2000 $ 24,321 $ 34,224 $ 18,095 $ 3,391 $ 3,940 $ 17,066 $ 18,070 $ 119,107 2001 $ 25,496 $ 38,988 $ 18,352 $ 3,479 $ 4,122 $ 18,759 $ 17,341 $ 126,537 2002 $ 25,267 $ 37,922 $ 18,644 $ 3,554 $ 4,280 $ 19,288 $ 18,307 $ 127,262 2003 $ 25,854 $ 37,930 $ 18,472 $ 3,462 $ 4,220 $ 21,680 $ 21,229 $ 132,847 2004 $ 27,867 $ 39,231 $ 20,279 $ 3,456 $ 7,639 $ 21,808 $ 20,395 $ 140,675 2005 $ 29,497 $ 39,371 $ 22,015 $ 2,605 $ 6,948 $ 22,550 $ 27,491 $ 150,477 2006 $ 30,652 $ 43,337 $ 24,412 $ 3,576 $ 6,819 $ 27,277 $ 21,543 $ 157,616 2007 $ 32,402 $ 42,586 $ 25,268 $ 3,529 $ 6,957 $ 28,578 $ 19,799 $ 159,119 2008 $ 31,791 $ 46,582 $ 26,343 $ 3,498 $ 7,577 $ 28,758 $ 18,024 $ 162,573

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Table III-2 sets forth the assessed value of all taxable property in the City for the past ten fiscal years. The total assessed value of all taxable property in the City at June 30, 2008, was approximately $21.2 billion. The estimated assessed value of tax-exempt properties owned by federal and Commonwealth governments, churches and schools, among others, was approximately $10.0 billion for fiscal year 2008, and is presented in Table III-3.

Table III-2 City of Norfolk, Virginia

Assessed Valuations and Estimated Actual Values of Taxable Property

Fiscal Years Ended June 30, 1999 – 2008 (Amount In Thousands)

Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008. Note: (1) Real property and personal property includes both general and public service corporations. (2) Other property includes machinery and tools, mobile homes, airplanes and boats. (3) Estimated actual taxable property values are based on data supplied by the City’s Commissioner of Revenue and

the City Assessor. Property value information does not include property of public service corporations or vacant land.


Real Property (1)

Personal Property (1)

Other Property (2)

Total Taxable Assessed Value

Estimated Actual Value (3)

1999 $ 7,934,397 $ 900,076 $ 219,963 $ 9,054,436 $ 15,145,054 2000 $ 8,098,113 $ 1,023,626 $ 203,300 $ 9,325,039 $ 15,668,692 2001 $ 8,458,281 $ 1,040,929 $ 228,874 $ 9,728,084 $ 16,119,540 2002 $ 8,882,064 $ 1,102,983 $ 219,845 $ 10,204,892 $ 16,794,801 2003 $ 9,356,760 $ 1,085,027 $ 300,481 $ 10,742,268 $ 17,864,127 2004 $ 10,029,639 $ 1,170,117 $ 283,544 $ 11,483,300 $ 19,424,095 2005 $ 10,960,812 $ 1,167,673 $ 310,519 $ 12,439,004 $ 21,576,347 2006 $ 12,691,527 $ 1,324,320 $ 316,471 $ 14,332,318 $ 25,196,622 2007 $ 15,607,512 $ 1,375,798 $ 322,971 $ 17,306,281 $ 27,820,206 2008 $ 18,401,851 $ 2,503,662 $ 322,195 $ 21,227,708 $ 28,427,502

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Estimated Value of Nontaxable Real Property (1) Fiscal Years Ended June 30, 2004 - 2008

(Amounts In Thousands)

Sources: Annual Reports of the City Assessor 2004 - 2008. Notes: (1) The assessed value was 100% of fair market value. The fiscal year ended June 30, 2008, estimated tax value is at a rate of $1.11 per $100 of estimated assessed value. (2) All other organizations include religious organizations, charitable organizations, private universities, Virginia Port Authority, Elizabeth River Tunnel Commission,

Hampton Roads Sanitation District and Eastern Virginia Medical Authority.

Fiscal Year

Ended June 30

Assessed Value

Estimated Tax Value

Assessed Value

Estimated Tax Value

Assessed Value

Estimated Tax Value

Assessed Value

Estimated Tax Value

Assessed Value

Estimated Tax Value

Assessed Value

Estimated Tax Value

2004 $ 4,116,089 $ 57,625 $ 1,494,691 $ 20,926 $ 382,610 $ 5,357 $ 689,933 $ 9,659 $ 1,241,480 $ 17,381 $ 7,924,803 $ 110,948 2005 $ 4,138,358 $ 57,937 $ 1,706,337 $ 23,889 $ 392,982 $ 5,502 $ 711,361 $ 9,957 $ 1,350,116 $ 18,902 $ 8,299,155 $ 116,188 2006 $ 4,581,576 $ 61,851 $ 1,718,375 $ 23,198 $ 465,660 $ 6,286 $ 769,584 $ 10,389 $ 1,439,067 $ 19,427 $ 8,974,261 $ 121,153 2007 $ 4,672,997 $ 59,347 $ 1,837,974 $ 23,342 $ 513,373 $ 6,520 $ 814,505 $ 10,344 $ 1,539,360 $ 19,550 $ 9,378,209 $ 119,103 2008 $ 5,001,343 $ 55,515 $ 1,970,451 $ 21,872 $ 546,112 $ 6,062 $ 875,238 $ 9,715 $ 1,651,053 $ 18,327 $ 10,044,197 $ 111,491

Total

Property Owned By:

Federal Government City of Norfolk

Norfolk Redevelopment and Housing Authority

Commonwealth of Virginia

All Other Organizations (2)

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Table III-4 presents the property tax rate per $100 of assessed value and the equalization ratios used to determine the fair market value of taxable property for the past five fiscal years.


Tax Rates and Equalization Factors Fiscal Years Ended June 30, 2004 – 2008

Source: City of Norfolk, Virginia

Notes: (1) The most recent Virginia Assessment/Sales Ratio Study is for 2004. (2) The real property and personal property assessments for public service corporations are based on information

furnished to the Commissioner of the Revenue by the State Corporation Commission and the Commonwealth’s Department of Taxation for calendar years 2004 through 2007.

The City has the power to levy taxes on property located within its boundaries for payment of its obligations without limitation as to rate or amount. Rates are established by the City Council. Table III-5 sets forth the City’s assessed values and tax levies on real and personal property for each of the past five fiscal years.

2004 2005 2006 2007 2008Property tax rate per $100 assessed value:

Business Improvement District $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18 Personal property $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.25 Machinery and tools $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.25 Mobile homes $ 1.40 $ 1.40 $ 1.35 $ 1.27 $ 1.11 Airplanes $ 2.40 $ 2.40 $ 2.40 $ 2.40 $ 2.40 Boats (business) $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50 Boats (pleasure) $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.50 Recreational vehicles $ 1.50 $ 1.50 $ 1.50 $ 1.50 $ 1.50 Disabled veterans $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00

Assessed value of real property as a percent of fair market value:

As determined by the City Assessor 100.00% 100.00% 100.00% 100.00% 100.00%As determined by the Commonwealth’s Department of Taxation (1) (2) 86.00% 65.00% 76.00% 76.00% --


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Table III-5

City of Norfolk, Virginia Assessed Valuation and Change in Property Tax Levy

Fiscal Years Ended June 30, 2004 – 2008 (Amounts In Thousands)


Fiscal Year Ended June 30 Real Property

Personal Property &

Other Property Tax Levy

Percentage Increase in

Property Tax Levy2004 $ 10,029,639 $ 1,453,661 $ 191,397 6.79%2005 $ 10,960,812 $ 1,478,192 $ 209,202 9.30%2006 $ 12,691,527 $ 1,640,791 $ 227,796 8.89%2007 $ 15,607,512 $ 1,698,769 $ 254,703 11.81%2008 $ 18,401,851 $ 2,825,857 $ 258,016 13.00%

Assessed Valuation

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Table III-6 sets forth information concerning the City’s real and personal property tax collection rate for fiscal years ended June 30, 1999 through 2008.


Real and Personal Property Tax Levies and Collections (1) Fiscal Years Ended June 30, 1999 – 2008

(In Thousands)

Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008. Note: (1) Delinquent tax collections are reported in the year collected.

Fiscal Year Ended June 30 Total Tax Levy

Current Collections

Percent of Current

Collections to Tax Levy

Delinquent Collections

Total Collections

Percentage of Total Tax

Collections to Tax Levy

1999 $ 150,747 $ 136,668 90.66% $ 11,068 $ 147,736 98.00%2000 $ 158,268 $ 145,772 92.10% $ 14,865 $ 160,637 101.50%2001 $ 164,289 $ 151,921 92.47% $ 13,501 $ 165,422 100.69%2002 $ 171,755 $ 158,914 92.52% $ 12,883 $ 171,797 100.02%2003 $ 179,220 $ 164,482 91.78% $ 18,724 $ 183,206 102.22%2004 $ 191,397 $ 178,200 93.10% $ 15,821 $ 194,021 101.37%2005 $ 209,202 $ 191,254 91.42% $ 8,549 $ 199,803 95.51%2006 $ 227,796 $ 203,804 89.47% $ 8,526 $ 212,330 93.21%2007 $ 254,703 $ 239,288 93.95% $ 10,097 $ 249,385 97.91%2008 $ 258,016 $ 238,728 92.52% $ 14,905 $ 253,633 98.30%

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Table III-7 sets forth the City’s ten largest taxpayers and the assessed value of real property owned by each such taxpayer during fiscal year ended June 30, 2008. The aggregate assessed value of the ten largest taxpayers represented 5.35% of the City’s total assessable base at June 30, 2008.


Ten Principal Real Property Taxpayers (1) June 30, 2008


Notes: (1) Total assessed value of taxable real property including public service corporations at June 30, 2008 was $18,401,851,069.

(2) The Ford Motor Company, Inc. closed its Norfolk assembly plant in June 2007.

GENERAL FUND EXPENDITURES Costs of General City Government The costs of most general government functions are paid from governmental funds. These costs include expenditures for police protection, fire and paramedical services, public health and social services, planning and zoning management, code enforcement, street maintenance, traffic control, parks and cemeteries operation and maintenance, recreation and library services, economic development, refuse disposal and general administrative services. Table III-8 presents the number of positions budgeted for employees (including salaries and related employee benefits such as health insurance and pension contributions).

Taxpayer Type of BusinessReal Property Assessed Value

Percentage of Total Real Property

Assessed ValueMacArthur Shopping Center LLC

(Taubman Co.) Retail $ 178,290,528 0.97%Dominion Virginia Power Public Service Utility $ 173,032,800 94.00%Verizon Virginia, Inc. Public Service Utility $ 131,127,740 71.00%Bank of America Bank $ 94,561,445 51.00%Ford Motor Company (2 ) Truck Manufacturer $ 87,462,500 48.00%Norfolk Southern Corporation Railroad $ 81,588,900 44.00%Military Circle Ltd. Partnership Shopping Center $ 65,187,525 35.00%Dominion Tower Ltd. Partnership Real Estate $ 58,001,800 32.00%Cox Virginia Telecom Public Service Utility $ 57,438,600 31.00%Norfolk Hotel Association (Marriott) Service $ 57,040,100 31.00%

Total Principal Taxpayers $ 983,731,938 5.35%

34


Budgeted Positions Fiscal Years Ended June 30, 2005 – 2009

________ Sources: Approved Operating Budgets, Fiscal Years Ended June 30, 2005 through 2009.

Note: (1) Figures shown represent the number of permanent and permanent part-time General Fund positions, exclusive of School Board positions.

Protected Self-Insurance Program The City is exposed to various risks of losses related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. On July 11, 1978, the City established a protected Self-Insurance Program Fund, pursuant to an ordinance adopted by the City Council, to cover itself from these risks of losses. The program provides for the payment of claims liabilities, property losses and related expenses covered by a combination of purchased insurance policies and self-insurance plans. The total of insurance premiums, self-insurance claims and related expense payments made during fiscal year ended June 30, 2008 was $14,148,283. The City currently reports all these activities as part of the risk management function in the general government section of the General Fund. Claims expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. At June 30, 2008, these liabilities were $25,059,306 of which $4,909,342 represents the current portion anticipated to be paid within a year. Estimated liabilities, as determined by an actuary, are reported at their present value, using the expected future investment yield assumption of five percent.

Changes in the City’s claims liability amount in the fiscal years ended June 30, 2004 and 2008 are as follows:


Number of Budgeted Positions (1)

2005 3,934 2006 3,969 2007 4,079 2008 4,111 2009 4,115


Unpaid Claims Beginning Balance

Claims Incurred Estimated Claims Paid Ending Balance

2004 $ 18,189,936 $ 6,188,209 $ 7,357,365 $ 17,020,780 2005 $ 17,020,780 $ 5,464,863 $ 5,544,508 $ 16,941,135 2006 $ 16,941,135 $ 8,248,731 $ 5,267,508 $ 19,922,358 2007 $ 19,922,358 $ 10,659,920 $ 5,515,618 $ 25,066,660 2008 $ 25,066,660 $ 12,313,224 $ 12,305,870 $ 25,059,306

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During fiscal year ended June 30, 2008, the City paid a large automobile liability claim in the amount of $7.5 million. The obligation was partially met with a $4.9 million payment from the City’s Risk Management Reserve. At the present time, this particular claim is viewed as a statistical anomaly when compared to the City’s recent years and long-term loss experience, is not anticipated as being indicative of the City’s change in trends, and is not representative of anticipated loss events that would threaten the City’s financial sustainment in the foreseeable future. Until fiscal year 2008, aggregate automobile liability claims costs, included in the total liability claims paid figures above, had been less than $1 million annually, with singular incidents paid at significantly lesser amounts. The City continues to self-insure most of its automobile liability risks since a formal plan was adopted in 1985. Retirement Plan The City has a single-employer noncontributory, defined benefit retirement plan that covers substantially all employees of the City, excluding School Board and Constitutional Officers employees who are covered by the Virginia Retirement System. The City’s contribution requirements are designed to fund the plan’s current service cost. Actuarially required contributions are appropriated each year by City Council. Total annual pension contributions for all City employees over the last three fiscal years to the City’s noncontributory retirement are presented in Table III-9.


Schedule of Annual Pension Contributions Fiscal Years Ended June 30, 2006 - 2008 (1)


Note: (1) Actuarially required Pension Contributions are funded and paid in the fiscal year following the contribution determination. Other Post-Employment Benefits In June 2004, the GASB issued Statement No. 45 (“GASB 45”), Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions, which the City was required to implement with respect to its financial statements for fiscal year ended June 30, 2008. GASB 45 establishes new standards as to how the City must account for and report the costs of its Other Post-Employment Benefits (OPEB) - health insurance, life insurance, and other non-pension benefits provided to its retirees. GASB 45 requires that the City and Schools recognize the costs of their OPEB during the period of their employee’s active employment, while the benefits are being earned, and disclose their unfunded actuarial accrued liability in order to accurately report the total future cost of post-employment benefits and the financial impact on the City. These GASB 45 requirements are very similar to requirements for pension benefits. The following steps have been taken to date, in preparation for the implementation of GASB 45:

- The City and Schools have completed an actuarial valuation of the benefits;


Annual Pension Contribution

2006 $ 25,728,228 2007 $ 25,135,944 2008 $ 25,728,228

36

- The City’s Retirement Board of Trustees have agreed to act as an OPEB Board of Trustees to manage the investment function of a formal employee benefit trust, should such a trust be established;

- In fiscal year ended June 30, 2008 the City allocated $1,898,253 in excess of the existing pay as you

go contributions toward addressing the liability; and

- Over time, the City and the Schools plan to gradually increase funding until the annual actuarial required contribution is fully funded.

As of June 30, 2008 the following is projected:

Source: Actuarial Valuation Report by Cheiron, Inc. measures as of July 1, 2007, for fiscal year ended June 30, 2008.

Note: (1) Estimates as shown assume the City and Schools establish a trust. Schools assumes a PayGo basis for calculating liability and the City assumes a prorated basis for calculating liability.

Employee Relations and Collective Bargaining The Supreme Court of Virginia has ruled that in the absence of legislation, municipalities and school boards in Virginia do not have the authority to enter into collective bargaining agreements.

PUBLISHED FINANCIAL INFORMATION

The City issues and distributes a Comprehensive Annual Financial Report on its financial operations for each fiscal year. The City also publishes annually an Operating Budget and a five-year Capital Improvement Program (CIP) Budget. These documents are available via the internet at www.norfolk.gov. In addition, the City will undertake to provide or cause to be provided certain Annual Financial Information described in the section “CONTINUING DISCLOSURE” to fulfill the requirements of the Rule promulgated by the SEC.

GENERAL FUND OPERATING BUDGET RESULTS FOR

FISCAL YEAR ENDED JUNE 30, 2008 On the budgetary basis of accounting, General Fund revenues were $806,725,956 representing 99.51% of budgeted revenue. General Fund expenditures were $805,237,762 representing 99.32% of budgeted expenditures. Table III-10 summarizes key financial results.

City Schools Total

Actuarial Accrued Liability as of 6/30/2007 (1) $ 43,600,000 $ 59,700,000 $ 103,300,000

Actuarial Required Contribution for FY 2008 $ 6,004,000 $ 4,800,000 $ 10,860,000

Estimated Pay Go Contribution and Explicit Subsidies (2,260,000) (2,560,000) (4,820,000)

FY 2008 Reserve in Excess of Pay Go (1,898,253) - (1,898,253)Difference $ 3,780,000 $ 2,260,000 $ 6,040,000

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General Fund Operating Budget Summary Results for the Fiscal Year Ended June 30, 2008

Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008. General Fund Operating Budget The Fiscal Year Ended June 30, 2009 General Fund Operating Budget was adopted on May 22, 2008, and totals $827,280,300 reflecting a 4.0% increase over the adopted Fiscal Year Ended June 30, 2008 General Fund Operating Budget of $795,835,700. Real estate tax revenues, the largest general property tax source, are estimated to grow by approximately 7.1% in fiscal year ended June 30, 2009 over the previous year. The real estate tax rate remained at $1.11 per $100 of assessed value. Hotel tax revenues are expected to be approximately $6.85 million and admission taxes are projected to grow 6% over the previous fiscal year to $4,450,000. Revenues from the Commonwealth of Virginia, mostly for education are anticipated to grow 3.1% or $10 million. The budget anticipates carrying over $3 million of the General Fund balance from fiscal year ended June 30, 2008 to fiscal year ended June 30, 2009 as part of the operating budget. The budget focuses on targeted priorities including education, public safety and neighborhood revitalization. Major revenue and expenditure categories are summarized in the following tables. Utilizing data through the first 10 months of the fiscal year ending June 30, 2009, unaudited general fund revenues are projected to be $8.5 million or 1.0% less than projected in the fiscal year ending June 30, 2009 Operating Budget due to lower than budgeted revenues that are economically sensitive (e.g., sales, meals, hotel, admissions, recordation tax collections) and lower than budgeted transfers from the Commonwealth. Additionally, unaudited general fund expenditures were projected to be $0.9 million or 0.1% more than projected. To compensate for the projected disparity, City management enacted targeted and across-the-board budgetary adjustments throughout the fiscal year. As a result, the City is not projecting a budgetary shortfall in FY 2009.

Fiscal Year 2008 Final

BudgetFiscal Year 2008 Results

Percent of Budget

Variance Positive

(Negative)Total Revenue and non-revenue receipts $ 810,722,221 $ 806,725,956 99.51% $ 3,996,265 Total Expenditures $ 810,722,221 $ 805,237,762 99.32% $ 5,484,459 Revenue greater (less) than expenditures $ - $ 1,488,194 $ 9,480,724

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General Fund Budget Fiscal Year Ended June 30, 2009

________ Source: Approved Operating Budget for fiscal year ended June 30, 2009. On April 7, 2009, the City Manager presented a proposed CIP Budget for the fiscal year ended June 30, 2010. City Council adopted this budget, which totals $160,393,568 on May 19, 2009.

Anticipated Revenue ReceiptsApproved

Budget Appropriations For ExpendituresApproved

BudgetGeneral Property Taxes $ 250,017,800 Legislative $ 4,653,800 Other Local Taxes $ 158,925,500 Executive $ 6,117,700 Permits and Fees $ 4,124,300 Department of Law $ 3,930,200 Fines and Forfeitures $ 1,635,000 Constitutional Officers $ 5,139,100 Use of Money and Property $ 10,958,000 General Management $ 33,239,100 Charges for Services $ 24,032,700 Judicial $ 45,614,200 Miscellaneous Revenue $ 4,036,600 Office of Elections $ 612,300 Non-Categorical Aid - Virginia $ 33,861,800 Community Development $ 7,049,400 Shared Expenses $ 22,000,000 Parks, Recreation and Cultural $ 42,605,300 Categorical Aid - Virginia $ 282,037,300 Public Health and Assistance $ 66,727,100 Federal Aid $ 6,291,500 Public Safety $ 99,697,200 Recovered Costs $ 9,648,300 Public Works $ 42,906,400 Other Sources and Transfers in $ 19,711,500 Debt Service $ 77,829,200

Education $ 330,190,900 Non-Departmental Appropriations $ 60,968,400

Total $ 827,280,300 Total $ 827,280,300

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General Governmental Expenditures by Function Fiscal Years Ended June 30, 1999 - 2008

(Amounts In Thousands)

Source: Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2008. Note: (1) Sheriff and Jail expenditures were reclassified in Fiscal Year Ended June 30, 2004, from Public Safety to Judicial Administration.

Fiscal Y ear E nded June

30

General Governm ent

Administrat ionJudicial

Adm inistrat ionPublic Safety

Public W orks

Health and Public

A ssistance E ducationCulture and Recreation

Com m unity Developm ent Debt Service

Inter-Governmental

Capital Outlay Total

1999 $ 42,499 $ 8,046 $ 94,113 $ 34,153 $ 64,993 $ 82,039 $ 46,186 $ 19,627 $ 45,685 $ 6,923 $ 35,263 $ 479,527 2000 $ 50,770 $ 8,969 $ 96,542 $ 36,792 $ 72,609 $ 79,033 $ 45,088 $ 22,970 $ 48,399 $ 5,950 $ 17,912 $ 485,034 2001 $ 50,671 $ 7,987 $ 101,523 $ 36,817 $ 56,967 $ 80,883 $ 46,032 $ 22,549 $ 51,121 $ 7,807 $ 27,488 $ 489,845 2002 $ 44,126 $ 8,790 $ 115,912 $ 56,124 $ 61,601 $ 83,883 $ 40,849 $ 16,945 $ 48,637 $ 7,932 $ 30,516 $ 515,315 2003 $ 64,639 $ 9,280 $ 123,202 $ 57,162 $ 68,140 $ 88,854 $ 40,149 $ 17,673 $ 48,448 $ 8,061 $ 37,770 $ 563,378

2004 (1) $ 76,127 $ 35,603 $ 94,979 $ 80,613 $ 76,221 $ 90,020 $ 40,081 $ 8,048 $ 49,551 $ 6,140 $ 45,026 $ 602,409 2005 $ 67,434 $ 38,110 $ 102,278 $ 64,497 $ 83,451 $ 91,865 $ 40,290 $ 12,716 $ 65,468 $ - $ 85,144 $ 651,253 2006 $ 92,062 $ 41,795 $ 105,634 $ 46,959 $ 91,535 $ 92,595 $ 42,995 $ 13,552 $ 56,462 $ - $ 91,632 $ 675,221 2007 $ 102,031 $ 45,173 $ 108,565 $ 49,161 $ 93,397 $ 97,595 $ 46,397 $ 11,158 $ 54,789 $ - $ 94,595 $ 702,861 2008 $ 110,974 $ 47,331 $ 116,208 $ 60,370 $ 95,159 $ 101,095 $ 51,071 $ 10,745 $ 60,728 $ - $ 114,007 $ 767,688

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RESULTS OF FINANCIAL OPERATIONS A comparative balance sheet at June 30, 2008 and 2007 extracted from the June 30, 2008 Comprehensive Annual Financial Report for the General Fund is presented in Table III-13. The Comparative Statement of Revenue and Expenditures for the City’s General Fund for the past five fiscal years are presented in Table III-14. The City’s most recent General Fund statements of changes in fund balances for the past five fiscal years are summarized in Table III-15.


Balance Sheet, General Fund June 30, 2008 with comparative totals for 2007

Source: Comprehensive Annual Financial Report for the Fiscal Years Ended June 30, 2008 and 2007.

2007 2008

Cash and cash equivalents $ 64,939,509 $ 51,735,145 Receivables, net:Taxes $ 60,097,267 $ 45,118,526 Accounts $ 1,751,147 $ 2,531,218 Notes $ 70,039 $ 47,276 Accrued investment income $ 578,138 $ 9,811 Due from other funds $ 4,078,974 $ 4,113,067 Receivable from other governments $ 6,247,095 $ 22,159,547 Deposit Contractors $ 200,000 $ 125,714,590

Total assets $ 137,962,169 $ 124,960,478

Vouchers/Accounts Payable $ 9,055,225 $ 9,405,462 Employee withholdings $ 702,930 $ 870,818 Accrued payroll $ 3,918,780 $ 4,641,025 Due to other funds $ 1,663,068 $ 6,648,265 Due to component units $ 28 $ - Deferred revenue $ 30,750,087 $ 29,948,443 Other liabilities $ 3,592,630 $ 6,229,389

Total liabilities $ 49,682,748 $ 57,743,402

FUND BALANCES

Reserved for:Encumbrances $ 16,602,919 $ 11,109,234 Retirees, life insurance $ 620,000 $ 560,000 Unreserved, reported in:General Fund – Designated future expenditures

$ 32,305,011 $ 15,765,842 General Fund - Undesignated $ 38,751,491 $ 40,536,112

Total fund balances $ 88,279,421 $ 67,971,188 TOTAL LIABILITIES AND FUND BALANCES $ 137,962,169 $ 125,714,590

ASSETS

LIABILITIES

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Comparative Statement of Revenue and Expenditures, General Fund (1) Fiscal Years Ended June 30, 2004 – 2008

2004 20 05 2006 2007 2008R EVENUE: Genera l property taxes 178 ,360,554$ 1 92,89 4,90 4$ 210,595,835$ 233,112,175$ 238 ,739 ,614$ Other lo cal taxes 135 ,913,691 1 41,51 0,67 4 148,336,907 149,792,683 153 ,068 ,673 Permits and licenses 3 ,204,071 3,54 1,51 6 4,088,238 4,071,084 4 ,055 ,323 Fines and forfeitures 1 ,626,731 1,76 3,07 8 1,461,418 1,568,816 1 ,307 ,680 Use of money and property 6 ,314,660 7,15 4,23 5 7,069,758 7,220,387 7 ,208 ,529 Charges for services 12 ,449,529 14,82 9,24 4 16,877,536 18,083,478 19 ,937 ,632 Miscellaneous 4 ,505,314 5,19 6,56 7 5,925,598 4,100,316 4 ,792 ,166 Recovered costs 12 ,296,915 14,18 7,85 2 12,666,645 8,337,397 8 ,620 ,136 Intergo vernmenta l 129 ,148,556 1 13,53 4,98 8 117,797,242 125,574,811 122 ,498 ,492 Total R evenue 483 ,820,021$ 4 94,61 3,05 8$ 524,819,177$ 551,861,147$ 560 ,228 ,245$ EXPENDITURES: Genera l government 64 ,390,732$ 65,57 8,00 6$ 88,834,205$ 101,191,123$ 107 ,878 ,689$ Jud ic ial administra tio n 35 ,260,950 37,45 6,65 4 40,889,147 44,115,143 46 ,015 ,225 Public safety 86 ,236,346 91,46 4,16 6 93,709,757 96,884,619 103 ,792 ,189 Public wo rks 67 ,255,473 50,25 6,20 6 34,276,568 36,775,654 42 ,909 ,508 Hea lth and public assistance 58 ,326,033 61,69 6,26 7 65,666,065 65,364,955 66 ,221 ,236 Culture and R ecrea tio n 31 ,858,823 32,10 8,63 0 32,833,720 37,332,038 41 ,205 ,827 Education 90 ,020,000 91,86 4,91 0 92,594,910 97,594,910 6 ,542 ,288 Community develop ment 8 ,048,376 7,12 5,75 6 6,468,840 6,182,579 101 ,094 ,910 Total Expend itures 441 ,396,733$ 4 37,55 0,59 5$ 455,273,212$ 485,441,021$ 515 ,659 ,872$ Excess o f (defic iency) revenue over expend itures 42 ,423,288 57,06 2,46 3 69,545,965 66,420,126 44 ,568 ,373 Other financing sources (uses): Proceeds from sale of land 342,076$ -$ -$ -$ 11 ,320 ,660$ Proceeds of capita l leases 4 ,430,252 4,70 1,51 6 4,828,468 - - Capita l co ntributions - - - - - Transfers in 10 ,449,842 11,10 3,03 6 11,835,850 11,824,628 10 ,000 ,000 Transfers out (58 ,553,596) (63,36 5,43 8) (71,712,560) (72,641,665) (86 ,197 ,266) Total O ther Financing So urces (Uses) (43 ,331,426) (47,56 0,88 6) (55,048,242) (60,817,037) (64 ,876 ,606) Spec ial Items: Write off of uncollectible FEMA Grant - (3,11 3,62 4) - - -

To ta l Other Financ ing Sources (Uses) and SpecialItems

(43 ,331,426) (50,67 4,51 0) (55,048,242) (60,817,037) (64 ,876 ,606)

Net Change in Fund B alance (908,138)$ 6,38 7,95 3$ 14,497,723$ 5,603,089$ (20 ,308 ,233)$

Fiscal Year Ended June 3 0

______ Sources: Comprehensive Annual Financial Reports for the Fiscal Years Ended June 30, 2004 through 2008.

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Table III-15

City of Norfolk, Virginia Comparative Statement of Changes in Fund Balance, General Fund

Fiscal Years Ended June 30, 2004 – 2008

Sources: Comprehensive Annual Financial Reports for the Fiscal Years Ended June 30, 2004 through 2008. Note: (1) This figure excludes the Tax Increment Fund in the amount of $309,319, which was reclassified as a special revenue fund beginning in fiscal year ended June 30, 2005.

2004 2005 2006 2007 2008

Net Change in Fund Balance $ - $ - $ - $ - $ -

Fund balance at beginning of year 58,106,522 63,008,083 62,698,764 (1) 62,698,764 62,698,794

Adjustment to beginning balance 4,901,561 - - 30 -

Fund Balance at end of year 63,008,083$ 63,008,083$ 62,698,764$ 62,698,794$ 62,698,794$


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PART IV ENTERPRISE FUNDS

WATER UTILITY FUND

Overview The City-owned water system (the “Water System”), operated by its Department of Utilities, is one of the largest municipal water systems in the Commonwealth. The more than 820,000 people served by the Water System are distributed throughout the City, the Naval bases in the Cities of Norfolk, Virginia Beach (“Virginia Beach”) and Chesapeake (“Chesapeake”), and the U.S. Naval bases located in the City and Virginia Beach. A Naval base in the City of Portsmouth (“Portsmouth”) is provided raw water service. The distribution of average metered consumption in the fiscal year ended June 30, 2008, is shown in Table IV-1.

Table IV-1

City of Norfolk, Virginia Water System

Average Metered Water Delivered by Customer Fiscal Year Ended June 30, 2008

______ Source: Department of Utilities. As June 30, 2008, the Water System had approximately 66,300 active accounts. The average annual daily amount of finished water pumped for fiscal year ended June 30, 2008 was 66 million gallons per day (“MGD”). Average day production includes approximately 4.49 MGD of unaccounted for water due to losses, water used for fire protection and the flushing of water mains. For fiscal year ended June 30, 2008, the System’s unaccounted for water level was approximately 6.8% which is well within the levels typically reported by well run water utilities according to the American Water Works Association. Prior to fiscal year ended June 30, 1998, Virginia Beach’s water use was restricted due to concerns about exceeding the safe yield of the Water System’s sources. Due to its rapid population growth since the 1950s, combined with recurring water shortages, Virginia Beach constructed a 76 mile pipeline from Lake Gaston in Brunswick County, Virginia (“Lake Gaston”) to the Water System through which raw water from Lake Gaston is conveyed, treated by Norfolk and then delivered to Virginia Beach. With the completion of the Lake Gaston Pipeline in fiscal year ended June 30, 2008, the conservation restrictions on Virginia Beach’s water use have been lifted, except in times of drought. Wholesale Contracts A significant portion of the Water System’s revenue is derived from wholesaling water to the U.S. Navy, Chesapeake, Portsmouth and Virginia Beach. The City has wholesale contracts with the U.S. Navy

Customer

Metered Water Delivered

(MGD) Percent of TotalNorfolk 18.35 26.67%Virginia Beach 35.62 51.77%U.S. Navy 4.45 6.47%Chesapeake 10.38 15.09%

68.80 100.00%

44

and Virginia Beach. In the absence of a wholesale contract, the City of Chesapeake purchases treated water from the City at a current rate of $3.84 per 100 cubic feet. If a wholesale contract between Chesapeake and the City is executed, the City anticipates the Chesapeake will continue to purchase treated water from the City pursuant to the wholesale customer treated water rate ordinance. The City also has executed a raw water contract with Chesapeake and began delivering 7 MGD of raw water in fiscal year ended June 30, 2006. In addition, the City has a contract with Virginia Beach for wheeling and treating Lake Gaston water and a contract with Portsmouth for the sale of emergency raw water. Financial Management On July 1, 1979, the City Council established the Water Utility Fund as a distinct enterprise fund to account for all of the financial activity related to providing water services to its customers. Since its inception, the Fund has operated on a self-supporting basis. Historically, regular annual transfers have been made from the Water Utility Fund to the City’s General Fund for payments-in-lieu of taxes and as a return on the City’s investment in the Water System. Additionally, transfers have been made to pay all debt service on general obligation bonds issued by the City prior to the creation of the water revenue bond program in 1993 to pay for Water System improvements. The City intends to pay for all future Water System capital costs from revenue of the Water System and proceeds of water revenue bonds. The Water Utility Fund is reported on an accrual basis of accounting. City general obligation debt issued to finance water utility projects is carried as a liability on the Water Utility Fund balance sheet. The Water Utility Fund provides the funds for debt service on such bonds. Water Rates Retail rates are set by City Council. Effective in fiscal year ended June 30, 2004, the City Council established a long-term retail rate plan and starting in fiscal year ended June 30, 2007, water rates increase 3.5% annually and produces the following rates:

U.S. Navy and Chesapeake wholesale rate revisions for inclusion in City Ordinances are approved by City Council. Virginia Beach formula driven biennial wholesale rate revisions are governed by contract. In order to encourage conservation, the current rate structure is a uniform rate per thousand gallons, with no quantity discount. Retail customers are charged a monthly service charge.

Fiscal Year Ended June 30, Retail Rate

2009 $3.61 per 100 cubic feet2010 $3.74 per 100 cubic feetThereafter 3.5% annual increases each July 1

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WASTEWATER UTILITY FUND

The City owns and operates a sanitary sewer system (the “Sewer System”) which collects and conveys wastewater to the regional treatment agency, the Hampton Roads Sanitation District. Approximately 65,900 accounts located within the City are served by the Sewer System. Since July 1, 1983, the Wastewater Utility Fund has been operated as an enterprise fund.

City general obligation debt issued to finance wastewater utility projects is carried as a liability on the Wastewater Utility Fund balance sheet. The Wastewater Utility Fund provides the funds for debt service on such bonds. Each customer using the City Sewer System is charged at a rate based on the water meter flow unless an effluent meter is used. In the absence of an effluent meter, the water meter flow is used. Rates are set by City Council. Effective in fiscal year ended June 30, 2005, the City Council established a long-term retail rate plan and starting in fiscal year ended June 30, 2006, wastewater rates increase annually by 4.0% and produces the following rates:

PARKING FACILITIES FUND

The City presently owns and operates 13 multi-level parking garages, 14 surface lots and 600 on-street spaces. These facilities provide a total inventory of over 19,000 downtown parking spaces.

The Parking Facilities Fund was established in fiscal year 1991. City general obligation debt issued

to finance Parking Facilities Fund projects is carried as a liability on the Parking Facilities Fund's balance sheet. The Division of Parking provides the funds for debt service on such bonds. The Parking Facilities Fund balance sheet on June 30, 2008, presents total assets of $162,273,630, which includes restricted investments of over $5.1 million, to be utilized for garage construction and required master indenture reserves. In addition, fixed assets, including parking structures, consist of over $138 million of the total $162.2 million in assets. The Parking Facilities Fund also manages parking enforcement operations and collects fines and delinquent fees. The annual volume of parking tickets is approximately 76,788. In fiscal year 2007, 82,070 tickets were issued resulting in 77% collection rate and revenue of $2,244,356.

Transfers have been made from the Parking Facilities Fund to the Debt Service Fund to pay all debt

service on general obligation bonds issued by the City to pay for Parking System improvements. Revenue of the Parking System has fully covered debt service on general obligation bonds issued for the Parking System.

Approximate population served 65,900 accountsTotal wastewater pumping stations 129 pump stations

Miles of gravity wastewater mains 816 milesMiles of wastewater force mains 63 miles

As of June 30, 2008:

Fiscal Year Ended June 30, Retail Rate

2009 $2.89 per 100 cubic feet2010 $3.01 per 100 cubic feetThereafter 4% annual increases each July 1

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In March 2008, the City executed a Master Development Agreement with a developer for the development of the Wells Fargo Center (formally the Wachovia Center). The Wells Fargo Center is a mixed-use privately financed project composed of a high rise Class A office tower and residential units, as well as an adjacent retail development. The Wells Fargo Center project represents a combined investment and expansion of the downtown area of $170 million. Construction on the project is underway and the Wells Fargo Center is expected to open in Spring 2010. The Master Development Agreement requires the City to finance the design, construction and equipping of a parking garage under the office tower and a central public parking garage to serve the entire Wells Fargo Center project. The City has estimated that the design, construction and equipping of the parking garages will cost $53,438,000.

The City also entered into a Master Development Agreement (the “Conference Center MDA”) with

RLJ-Fulco Norfolk, LLC for the construction of a privately financed hotel adjoining a parking garage and conference center. The Conference Center MDA requires the City to finance the design, construction and equipping of the parking garage (among other things). The projected budget for the parking garage is approximately $22 million. Construction on the project is expected to begin in Spring of 2010.

City management plans to ask City Council to adopt increases in various parking rates and fines to

become effective in late 2009 or early 2010.

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PART V THE CITY OF NORFOLK

INTRODUCTION

The City of Norfolk was established as a town in 1682, as a borough in 1736 and incorporated as a city in 1845. The City lies at the mouth of the James and Elizabeth Rivers and the Chesapeake Bay, and is adjacent to the Atlantic Ocean and the cities of Virginia Beach, Portsmouth and Chesapeake.

Table V-1 City of Norfolk, Virginia

Area of City

CITY GOVERNMENT

Norfolk is an independent, full-service City with sole local government taxing power within its boundaries. It derives its governing authority from a charter (the “Charter”), originally adopted by the General Assembly of Virginia (The “General Assembly”) in 1918, which authorizes a council-manager form of government. The City Council exercises all of the governmental powers conferred upon the City. Having sought and gained approval from the U.S. Justice Department and the General Assembly, the City gave its citizens the right to elect their Mayor directly, effective May 2006. Previously the City’s Mayor had been chosen by the City Council from among its members. This change added an eighth member to the City Council, with the Mayor elected at large, and retains the current seven wards with two members elected from super wards. The City Council elects a Vice Mayor from among its members. Among the City officials appointed by the City Council is the City Manager, the administrative head of the municipal government. The City Manager carries out its policies, directs business procedures and appoints, with the power to remove, the heads of departments and other employees of the City except those otherwise specifically covered by statutory provisions. The City Council also appoints certain boards, commissions and authorities of the City. Certain Elected Officials The City's current elected officials include: Paul D. Fraim, Mayor In May 2006, Mayor Fraim became the City’s first popularly elected mayor in nine decades. Mayor Fraim is a 20-year incumbent on City Council, and was first elected Mayor by his peers in 1994. He is the president of the law firm Fraim & Fiorella, P.C., and was first elected to City Council in 1986. He has a Bachelor of Arts degree from Virginia Military Institute, Lexington, Virginia, and a Masters in Education degree from the University of Virginia, Charlottesville, Virginia. He received his law degree from the University of Richmond, Richmond, Virginia. Mayor Fraim is an active member of the Virginia State Bar, the Virginia Bar Association and the Norfolk-Portsmouth Bar Association and has held a number of leadership positions in these organizations.

Year Square Miles1950 37.191960 61.851970 61.851980 65.751990 65.982000 65.982008 65.98

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Anthony L. Burfoot, Vice Mayor Mr. Burfoot, representing Ward 3, was first elected to City Council in July 2002. He is employed by New York Life as a licensed Life and Annuities Health Agent. Effective December 15, 2008, Vice Mayor Burfoot become a chief deputy for Norfolk’s City Treasurer Thomas W. Moss, Jr. He received a Bachelor of Science degree in Public Administration and a Master's degree in Educational and Administrative Supervision from Virginia State University, Petersburg, Virginia. He is involved in many civic and business activities. Daun S. Hester, Council Member Mrs. Hester, representing Super Ward 7, was first elected to City Council in July 1996. Mrs. Hester is currently a consultant with Hester, Hester & Associates, Ltd. She received a Bachelor of Science degree from Virginia State University, Petersburg, Virginia, and a Master of Arts degree in Education and Human Development from The George Washington University, Washington, D.C. Mrs. Hester is active in many local professional organizations. Paul R. Riddick, Council Member Mr. Riddick, representing Ward 4, was first elected to City Council in July 1992. He is the owner and operator of Riddick Funeral Service. He attended Norfolk State University, Norfolk, Virginia, and has an Associates in Art and Sciences degree in Funeral Service from John Tyler Community College, Chester, Virginia. Mr. Riddick is active in many local professional organizations. Dr. Theresa W. Whibley, Council Member Dr. Whibley, representing Ward 2, was first elected to City Council in July 2006. She is an obstetrician and gynecologist in private practice at Woman Care Centers, PLC in Norfolk. Dr. Whibley is a graduate of Eastern Virginia Medical School, Jones Institute of Reproductive Medicine, Norfolk, Virginia, Old Dominion University, Norfolk, Virginia and the College of William and Mary, Williamsburg, Virginia. Dr. Whibley is active in many local professional organizations. Donald L. Williams, Council Member Mr. Williams, representing Ward 1, was first elected to City Council in July 2002. Prior to running for Council, Mr. Williams served as a delegate in the Virginia House of Delegates from 1998 through 2001. He is currently president of the Hampton Roads Housing Center. He attended Old Dominion University, Norfolk, Virginia and obtained a real estate broker's license in 1983. Mr. Williams is active in many civic and business activities. Barclay C. Winn, Council Member Mr. Winn, representing Super Ward 6, was first elected to City Council in July 2000. He is the Chief Executive Officer of Winn Nursery of Virginia, Inc. He received a Bachelor of Science degree from North Carolina State University, Raleigh, North Carolina. Mr. Winn is active in many civic and business activities. W. Randy Wright, Council Member Mr. Wright, representing Ward 5, was first elected to City Council in July 1992. He is the owner of Randy Wright Printing and Publishing. He is involved in many civic and business activities, including serving as the chairman of the Mayor's Ocean View Task Force and Economic and Community Business Development Committee.

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Certain Appointed Officials Regina V.K. Williams, City Manager Regina V.K. Williams assumed the post of Norfolk City Manager in January 1999. Her responsibilities include the supervision of the administrative operations of the City and the preparation of its annual budget. She served as City Manager for the City of San Jose, California for five years and previously served as Assistant City Manager for five years. Prior to serving in San Jose, Mrs. Williams was Deputy City Manager and Chief of Staff for the City of Richmond, Virginia. In 1982, Mrs. Williams was appointed by then Virginia Governor Charles Robb as the first female and first African American to be State Director of Personnel and Training. In 1991, she was inducted as a fellow into the National Academy of Public Administration (NAPA). In 1988, Mrs. Williams was elected as Vice-President of the Board of Directors for the International City-County Management Association (ICMA). She was awarded the designation of manager of the year in September 2002 by ICMA. Mrs. Williams also served as the President of the National Forum of Black Public Administrators in 1995-96 and is a founder and former President of the Richmond, Virginia Chapter of the Conference of Minority Public Administrators. She earned her Bachelor of Science degree from Eastern Michigan University, Ypsilanti, Michigan, and a Masters degree in Public Administration from Virginia Commonwealth University, Richmond, Virginia. Alice M. Kelly, Acting Director of Finance and Business Services Alice M. Kelly commenced her tenure as Acting Director of Finance on June 23, 2008. At the direction of the City Manager, she is responsible for identifying strategic opportunities for the City in the policy areas of taxation, financial management and fiscal policy development. In addition, she is responsible for the administration of the financial affairs of the City which include cash management and investments, debt management, financial accounting and reporting, procurement, risk management and retiree benefits. Ms. Kelly has worked for the City since April 1990 in various capacities and departments including Utilities, Finance and Public Works. Her most recent position with the City has been Assistant Director of Public Works, a position she held from November 2002 to June 2008. Ms. Kelly earned a Bachelor of Science degree in Accounting from Virginia Polytechnic Institute and State University (Virginia Tech), Blacksburg, Virginia. She is a licensed Certified Public Accountant. Ms. Kelly has served as Chairman of the Board of the Norfolk Municipal Employee Federal Credit Union since April 2008 and, prior to being elected to that position, served as Treasurer on the Board since 1998. Bernard A. Pishko, City Attorney Bernard A. Pishko was first appointed by City Council as City Attorney in November 1997. He previously served as Deputy City Attorney from 1989 to 1997 and as an Assistant City Attorney from 1984 to 1989. He has practiced law since 1982. The City Attorney is also general counsel for the Norfolk School Board, Norfolk Recreational Facilities Authority, Norfolk Community Services Board, Hospital Authority of Norfolk, Norfolk Municipal Employees’ Retirement System, Norfolk Electoral Board, Civil Service Commission and The Chrysler Museum of Art. Mr. Pishko is a member of many professional associations and community organizations. He received his undergraduate degree from Brown University, Providence, Rhode Island, a Masters degree in Business Administration from the College of William and Mary, Williamsburg, Virginia, and a law degree from the Marshall-Wythe School of Law, Williamsburg, Virginia.

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Governmental Services and Facilities In Virginia, cities and counties are not overlapping units of government. Each city or county is a distinct political entity providing services for the population within its respective jurisdiction. The City of Norfolk provides a comprehensive range of public services characteristic of its form of government under Virginia law. These services are designed to provide an environment within which the educational, physical, social and cultural needs of its citizens are met. These general governmental services include police protection, fire and paramedical services, public health and social services, planning and zoning management, code enforcement, storm water management, street maintenance, traffic control, parks and cemeteries operation and maintenance, recreation and library services, economic development, solid waste disposal and general administrative services. In addition, water and wastewater utilities and parking facilities services are provided under an enterprise fund concept with user-charges set by City Council.

VOTERS

CONSTITUTIONAL OFFICERS MAYOR and CITY

COUNCIL

CITY MANAGER Council Appointees

Assistant City Managers

City Departments• City Attorney• City Auditor• City Clerk• Real Estate Assessor• Records Management

• City Treasurer• Commissioner of the Revenue• Sheriff• Commonwealth’s Attorney• Clerk of Circuit Court

• Cultural Facilities, Arts and Entertainment• Communications and Public Information

• Development• Finance and Business Services

• Fire-Rescue• Human Resources• Human Services

• Information Technology• Intergovernmental Relations• Office of Budget and Management

• Office to End Homelessness• Office of Grants Management

• Libraries• Maritime Center/Nauticus• Neighborhood Preservation

• Planning and Community Development• Police

• Public Health• Public Works

• Radio and Electronics• Recreation / Parks and Open Spaces

• Utilities• Zoological Park

VOTERS

CONSTITUTIONAL OFFICERS MAYOR and CITY

COUNCIL

CITY MANAGER Council Appointees

Assistant City Managers

City Departments• City Attorney• City Auditor• City Clerk• Real Estate Assessor• Records Management

• City Treasurer• Commissioner of the Revenue• Sheriff• Commonwealth’s Attorney• Clerk of Circuit Court

• Cultural Facilities, Arts and Entertainment• Communications and Public Information

• Development• Finance and Business Services

• Fire-Rescue• Human Resources• Human Services

• Information Technology• Intergovernmental Relations• Office of Budget and Management

• Office to End Homelessness• Office of Grants Management

• Libraries• Maritime Center/Nauticus• Neighborhood Preservation

• Planning and Community Development• Police

• Public Health• Public Works

• Radio and Electronics• Recreation / Parks and Open Spaces

• Utilities• Zoological Park

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In Virginia, cities and counties are not overlapping units of government. Each city or county is a distinct political entity providing services for the population within its respective jurisdiction. The City of Norfolk provides a comprehensive range of public services characteristic of its form of government under Virginia law. These services are designed to provide an environment within which the educational, physical, social and cultural needs of its citizens are met. These general governmental services include police protection, fire and paramedical services, public health and social services, planning and zoning management, code enforcement, storm water management, street maintenance, traffic control, parks and cemeteries operation and maintenance, recreation and library services, economic development, solid waste disposal and general administrative services. In addition, water and wastewater utilities and parking facilities services are provided under an enterprise fund concept with user-charges set by City Council.

Other Governmental Entities School Board of the City of Norfolk The seven members of the School Board of the City of Norfolk (the “School Board”) are appointed by the City Council. The School Board is a corporate body and in its corporate capacity is vested with all of the duties, obligations and responsibilities imposed upon school boards by law. The City Council is required to appropriate annually to the School Board the amount needed for the support of the public schools in maintaining educational programs which meet the standards of quality prescribed by law. Categorical aid from the Commonwealth of Virginia and the federal government designated for educational purposes is included in the City’s General Fund budgetary revenue. This categorical aid, plus monies derived from local sources, provides the funds for the major share of the School Board’s operations. On an ongoing basis, the City also issues debt to finance needed capital projects of the school system. The School Board presently operates 35 elementary schools, nine middle schools, five high schools and several auxiliary schools, including alternative, magnet and specialty programs. For the fiscal year ended June 30, 2008, the School Board’s expenditures for education totaled $379,570,982. Norfolk Airport Authority The Norfolk Airport Authority, a political subdivision of the Commonwealth, was created to operate an airport and to promote industrial growth and consists of both an Airport Fund and an Investment Fund. The Airport Fund was established by the Authority to account for the operations of the Norfolk International Airport (the “Airport”). Revenue generated by airport operations is used to meet all operating expenses and to provide for payment of all principal and interest on debt of the Authority related to the Airport. The Investment Fund was established by the Authority to provide for certain airport capital improvements. The Authority finances individual capital projects by issuing bonds or obtaining loans and intergovernmental grants in its own name and concurrently entering into leases which provide for payment of all principal and interest on the related obligations as they become due. Revenue includes rental income on non-airport property owned by the Authority and interest on investments. The Authority’s Commissioners are appointed by City Council, but the Commission designates its own management and has oversight responsibility for its own financial matters. The City does not provide funds for the operations of the Authority, and pursuant to Section 144(q) of the City Charter, the Authority is required to submit its annual budget to the City Council for the purposes of information only. The City has the option to reacquire, without consideration, title to all property and equipment after payment by the Authority of all obligations relating to the improvements at the Airport.

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Hampton Roads Regional Jail Authority

The Hampton Roads Regional Jail Authority (“HRRJA”) is a regional organization which includes the cities of Hampton, Newport News, Norfolk and Portsmouth, created for the purpose of providing, operating and maintaining a regional jail facility for the correctional overflow from each community. HRRJA is a primary government, with no component units, that is a body politic and corporate created pursuant to Article 3.1, Chapter 3, Title 53.1 of the Virginia Code and is governed by a 12 member Board of Directors, consisting of three representatives appointed by each of the member cities. The budgeting and financing of HRRJA are subject to the approval of the Board of Directors, with each individual having a single vote. HRRJA is responsible for its own financial matters, maintains its own books of account and is audited annually by independent accountants that it engages.

The regional jail facility (the “Jail”), which opened in March 1998, consists of approximately 385,518 square feet of building area, including three housing building units, a support building and a central plant. The Jail holds 875 inmates of which, 250 are designated to the City. The City is responsible for 28.57% of the total operating cost less the revenue derived from the Virginia Compensation Board and the per diem reimbursement from the Commonwealth for the housing of state inmates. The Southeastern Public Service Authority of Virginia The Southeastern Public Service Authority (“SPSA”) is a joint venture of the cities of Chesapeake, Franklin, Norfolk, Portsmouth, Suffolk and Virginia Beach and the counties of Isle of Wight and Southampton, created for the purpose of providing, operating and maintaining a regional system for the collection, transfer, processing and disposal of solid waste refuse. SPSA is a primary government, with no component units, that is a public body politic and corporate created pursuant to the Virginia Water and Sewer Authorities Act, and is governed by an eight-member Board of Directors, consisting of a representative appointed by each of the member cities and counties. Budgeting and financing of SPSA is subject to the approval of the Board of Directors, with each individual having a single vote. SPSA is responsible for its own financial matters, maintains its own books of account and is audited annually by independent accountants that it engages. The regional system includes a refuse-derived fuel plant and a fuel delivery system, located on federally-owned land in Portsmouth, as well as solid waste transfer stations in each of the member jurisdictions, a landfill, rolling stock and ancillary facilities, and an extensive recycling program which collects recyclable waste products from single-family homes and at drop-off centers. Transportation District Commission Hampton Roads Transit (“HRT”) was created on October 1, 1999, with the consolidation of the Tidewater Regional Transit and Peninsula Transportation District Commission. It is believed to be the first voluntary merger of public transit agencies in the nation. The district continues to be a political subdivision of the Commonwealth of Virginia, formed as a joint exercise of governmental power in accordance with the provisions of Chapter 32 of Title 15.2 of the Virginia Code. The District provides public transportation facilities and services within Cities of Norfolk, Chesapeake, Hampton, Newport News, Portsmouth, Suffolk and Virginia Beach. The Hampton Roads (formerly Tidewater) Transportation District Commission, a political subdivision of the Commonwealth of Virginia, was formed on May 9, 1973, as a joint exercise of governmental power in accordance with provisions of Chapter 32 of Title 15.1 of the Virginia Code.

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Table V-2 City Of Norfolk, Virginia

Contributions To Hampton Roads Transportation District Commission Fiscal Years Ended June 30, 2005-2009

Sources: Approved Operating Budgets, Fiscal Years Ended June 30, 2005 through 2009. Hospital Authority of Norfolk The Hospital Authority of Norfolk (the “HAN”), which has a nine-member Board of Commissioners appointed by City Council, is a tax-exempt, not-for-profit political subdivision of the Commonwealth created pursuant to an Agreement of Transfer dated July 1, 1988. The HAN operates Lake Taylor Hospital as a long-term care facility licensed by the Virginia State Health Department to provide a continuum of patient care ranging from sub-acute hospital services to skilled nursing care. Norfolk Redevelopment and Housing Authority The Norfolk Redevelopment and Housing Authority (“NRHA”), a political subdivision of the Commonwealth, was created by the City on July 30, 1940, under the provisions of the United States Housing Act of 1937. The NRHA provides subsidized public housing and administers redevelopment and conservation efforts within the City in accordance with state and federal legislation. The seven members of the Board of Commissioners are appointed by City Council. The NRHA is responsible, through a contract with the City, for the administration of such activities as community development and urban renewal. The NRHA develops its operating budget without approval from the City Council and executes contracts on its own behalf. The City does not exercise a significant degree of oversight responsibility for the NRHA, as it is responsible for designating its own management, developing its own operating budget and executing major contracts on its own behalf. The NRHA is responsible for its own financial matters as it maintains its own books of account, is audited annually by independent accountants it engages, and has authority over earnings, deficits and monies other than City contract funds. The City contracts with NRHA to complete specific projects, generally capital improvement projects.

Fiscal Year Contributions2005 $ 3,021,200 2006 4,559,463 2007 5,960,949 2008 7,047,624 2009 7,666,622

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ECONOMIC AND DEMOGRAPHIC FACTORS

Population As reflected in Table V-3 below, from 1999 to 2008 recently published population statistics suggest the City’s population has now stabilized. The City is the second most populous city in Virginia, as shown in Table V-4.

Table V-3

Population Trend Comparisons 1999-2008

Sources: Various Reports of the Bureau of the Census and the Weldon Cooper Center for Public Service, University of

Virginia.

Notes: (1) For years 1999-2008, population estimates are from the Weldon Cooper Center for Public Service, University of Virginia.

(2) For years 1999-2008, U.S. and Virginia population estimates are from the U.S. Census Bureau.

Year Norfolk (1)Hampton Roads

MSA (1) Virginia (2) U.S. (2)

19992000 234,403 1,533,739 7,078,515 281,421,9062001 234,000 1,567,300 7,188,251 285,039,8032002 233,600 1,574,500 7,276,785 287,726,6472003 233,900 1,583,900 7,363,300 290,210,9142004 235,200 1,605,900 7,454,688 292,892,1272005 235,071 1,615,415 7,546,725 295,560,5492006 234,219 1,619,600 7,628,347 298,362,9732007 235,915 1,623,624 7,698,775 301,290,3322008 235,092 1,626,767 7,769,089 304,059,724

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Table V-4 Five Most Populous Cities in Virginia

Source: Bureau of the Census and the Weldon Cooper Center for Public Service, University of Virginia. Table V-5 provides an annual comparison of per capita personal income since 1997.


Per Capita Personal Income Comparisons 1997-2006

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Regional Economic Information System, 2008. The age distribution of the City’s population is presented in Table V-6.

City2000 Census Population

2008 Population Estimate

Virginia Beach 425,257 431,451 Norfolk 234,403 235,092

Chesapeake 199,184 216,622 Richmond 197,790 195,463

Newport News 180,697 180,978

Year CityHampton Roads

MSA State U.S.1997 20,361 22,838 26,307 25,334 1998 21,406 24,026 27,780 26,883 1999 22,131 24,912 29,226 27,939 2000 23,523 26,360 31,083 29,845 2001 24,767 27,767 32,511 30,574 2002 25,346 28,784 33,033 30,821 2003 26,672 30,057 34,001 31,504 2004 28,114 31,540 35,841 33,123 2005 30,162 33,259 37,968 34,757 2006 31,459 34,858 39,540 36,714

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Table V-6

City of Norfolk, Virginia City Population Distribution by Age

1960-2000

________ Source: Various Reports of the Bureau of the Census.

Housing and Construction Availability Table V-7 provides an annual breakdown of residential building permits over the past 10 fiscal years.

Table V-7 City of Norfolk, Virginia Residential Construction

Fiscal Years Ended June 30, 1999 - 2008

Source: Permit Tracking System, Department of Planning, City of Norfolk, Virginia. Table V-8 presents annual nonresidential construction, which includes commercial buildings, public buildings, schools, public utility buildings and miscellaneous structures.

Year Population Under 20 20-64 65 or Older1960 305,872 39.8% 54.5% 5.7%1970 307,951 35.4% 57.8% 6.8%1980 266,979 30.7% 60.1% 9.2%1990 261,250 28.1% 61.4% 10.5%2000 234,403 27.3% 61.5% 11.2%

Fiscal Year Building Permits Number of UnitsValue

(in thousands)1999 174 241 $ 21,872 2000 189 310 $ 38,739 2001 185 401 $ 35,109 2002 290 462 $ 44,498 2003 287 609 $ 61,790 2004 506 766 $ 83,525 2005 560 1,191 $ 204,391 2006 531 1,058 $ 133,053 2007 389 491 $ 68,476 2008 277 815 $ 101,212

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Nonresidential Construction Fiscal Years Ended June 30, 1999 – 2008

Source: Permit Tracking System, Department of Planning, City of Norfolk, Virginia.

Employment Businesses in the City provide residents with employment opportunities in a variety of industries of which services, government and trade are the most significant. The unemployment rate for the City is illustrated in Table V-9.


Unemployment Rates 1999 – 2008

Source: Virginia Employment Commission.

Fiscal Year Building PermitsValue

(in thousands)1999 46 $ 52,932 2000 45 $ 138,472 2001 35 $ 62,046 2002 53 $ 51,451 2003 35 $ 24,084 2004 59 $ 134,197 2005 70 $ 70,677 2006 60 $ 165,989 2007 55 $ 81,396 2008 35 $ 102,714

Year Norfolk

Hampton Roads MSA Virginia U.S.

1999 5.0% 3.2% 2.7% 4.2%2000 3.3% 2.5% 2.3% 4.0%2001 4.3% 3.3% 3.2% 4.7%2002 5.5% 4.2% 4.2% 5.8%2003 5.7% 4.3% 4.1% 6.0%2004 5.5% 4.1% 3.7% 5.5%2005 5.4% 4.0% 3.5% 5.1%2006 4.2% 3.3% 3.0% 4.6%2007 4.1% 3.2% 3.0% 4.6%

2008 (1) 6.6% 5.3% 5.2% 7.1%

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Notes: (1) For year 2008, unemployment rates are for the month of December 2008.


Civilian Employment and Average Weekly Gross Wages 3rd Quarter, 2008

Source: U.S. Bureau of Labor Statistics. Virginia Employment Commission, Quarterly Census of Employment & Wages

Program.

Number of Establishments

Number of Employees

Average Weekly Gross

WagePercentage of Employment

Construction 468 6,036 $ 820 4.20%Manufacturing 169 7,221 $ 903 5.03%Trade, Transportation & Utilities 1,390 29,112 $ 3,439 20.27%Information 122 3,516 $ 1,325 2.45%Financial Activities 643 9,430 $ 1,711 6.57%Professional & Business Services 1,050 21,723 $ 3,117 15.13%Education and Health Services 660 35,862 $ 1,477 24.97%Leisure and Hospitality 609 12,975 $ 655 9.04%Other Services 609 3,879 $ 531 2.70%Public Administration 78 13,825 $ 1,128 9.63%Natural Resources & Mining 4 17 $ 554 0.01%

Total 5,802 143,596 100.00%

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Economic Development Economic development initiatives are focused on the attraction, expansion and retention of businesses, neighborhood and community revitalization and commercial corridor development. Some of the City-lead initiatives to stimulate commercial revitalization include: Tax Abatement Program; Federal Empowerment and HUB Zones; State Enterprise Zones; Small Area Aesthetic Matching Grant Program; Aesthetic Improvement Grant Pool; Pedestrian Commercial Overlay Zones; Tax and Grant Benefits; Concentrated Development Zone Incentives; public infrastructures; and amenities. Downtown Development Downtown offers a mix of cultural attractions and entertainment for its citizens and tourists. Resulting from the coordinated efforts of the City, downtown property assessed value increased 69.43% from fiscal year ended June 30, 2000 through 2007. The current average vacancy rate for Downtown Class A office space is below 10%, as shown in Table V-11 below.


Downtown Norfolk Vacancy January 2008

Source: CoStar, March 2009. Bank presence along Main Street includes Bank of America, BB&T, Monarch, Old Point National, RBC Centura, SunTrust, TowneBank and Wachovia. Bank of Hampton Roads, Heritage, Bank of the Commonwealth and several credit unions are also located downtown. The Wells Fargo Center, a $170 million dollar office, retail and residential development broke ground in May 2008 on Monticello Avenue adjacent to MacArthur Center, Scope and Chrysler Hall. This city block development features a 22-story Class A office tower, which is 70% leased. The project will also include 50,000 square feet of retail shops, 162 apartments and 1,850 parking spaces in two garages to be built by the City.

Class A Rentable SF Vacant SF % Vacant 150 West Main Street 226,183 23,568 10.42%Crown Center 62,000 - 0.00%Dominion Tower 403,276 23,485 5.82%Main Street Tower 200,000 17,151 8.58%Norfolk Southern Tower 301,463 - 0.00%Town Point Center 130,266 21,828 16.76%World Trade Center 366,941 39,794 10.84%

Total 1,690,129 125,826 7.44%

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Residential Development Neighborhood revitalization is one of the City’s core initiatives and part of the economic development plan. By increasing the diversity of housing opportunities, the City expects to increase the diversity of its citizenry and expand the tax base. The City's goal for neighborhood and commercial development is to provide an environment that will increase private sector investment, retail sales generation and corresponding municipal revenue generation, create a framework for targeted and coordinated public and private investment and build upon and coordinate with other ongoing community development initiatives. Residential investment continues to grow throughout the City. Several mixed-use offerings now being occupied Downtown include: Harbor Heights, a $57 million investment, 99 lofts, with a first floor retail grocery, integral parking and two floors of administrative space for Tidewater Community College; St. Paul’s Place is complete with 90 condos alongside the MacArthur Center bringing a mix of historic façade to traditional condos (The Flats) and industrial lofts along St. Paul’s Boulevard (The Lofts); and The Rotunda, a signature round building adjacent to St. Paul's Place into 66 condominiums ranging in price from $250,000 to $1.2 million. In addition to these buildings, there are 94 condominium units at 388 Boush Street, an upscale community representing a $26 million project wrapping a City parking garage. The 20-unit, $25 million, Franklin Condominiums are also now available. This project further moved downtown redevelopment across Brambleton Avenue. The Belmont at Freemason, will contain 241 apartments in two buildings and a garage with 531 parking spaces at Brambleton and Bute Streets with an estimated value of $45 million. Residential development also continues to grow in areas beyond Downtown Norfolk. In Larchmont, located on the west side of Norfolk, The Landings at Bolling Square, a 184 condominium unit development estimated at $60 million, has recently been completed. Other residential development includes 12 new brick town homes on Church Street. These three to four bedroom units are priced between $165,000 and $225,000. The River House, a $32 million, 194-unit luxury apartment community on Haven Creek at the Granby Street Bridge is currently being constructed. When completed, it will strengthen the Riverview commercial corridor and boost prospects for development of adjoining property in this vital area situated between two desirable and historic neighborhoods. Site work has begun on the SouthWind Apartments, a $15 million development in Denby Park on a former trailer park. Additional investment along Newport Avenue includes Westport Commons, an $80 million townhouse/condominium project. The seven-mile stretch of beaches on the Chesapeake Bay known as Ocean View experienced redevelopment over the past decade. More than 200 new homes have been built in Ocean View with an average value of $250,000. The East Beach section of Ocean View will have 700 housing units with prices ranging from $200,000 to over $1.5 million. A portion of the homes are currently occupied with the remainder of the development on track for completion by 2010. Lot sales total over $37 million dollars, and the developers’ final payment on the $8.5 million land purchase was made in 2008 – two years ahead of schedule. Another project moving forward on East Ocean View Avenue is the Bay Village Senior Condominiums, a $15 million development and the first housing exclusively for seniors in Ocean View. Broad Creek is a $200 million new community near Norfolk State University with 600 mixed-income homes. In Broad Creek, the region’s first mixed-use, mixed-income community, construction is complete on 400 rental units and 70 homes. Construction on Broad Creek Village, a mixed-use residential and retail development began during 2008, and is being followed by Broad Creek’s final phase of 200 mixed-income residential units north of Princess Anne Road. The City is also redeveloping the Fort Norfolk area, which is a 30-acre urban waterfront area linking Downtown Norfolk to the region’s medical complex and Ghent community. In the Fort Norfolk section of Downtown Norfolk, the City’s first retirement community, known as Harbour’s Edge, opened in September 2006 and the second phase is currently being planned. Fort Norfolk Plaza across Brambleton from the medical complex that includes Sentara Norfolk General Hospital and Eastern Virginia Medical School, is a $70 million, 9-story medical office tower that broke ground in February 2009. The project,

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which broke ground in February 2009, is expected to also include a jazz club/restaurant, retail shops and a parking garage.

Arts and Culture Norfolk offers a mix of cultural attractions and entertainment for its citizens and tourists. Recently, investments in this segment include restoration of three live performance theatres, the construction of a cruise terminal building and upgrades to civic venues. Norfolk is home to the Chrysler Museum of Art, Virginia Arts Festival, Virginia Ballet, Virginia Opera, Virginia Stage Company and Virginia Symphony. Norfolk’s entertainment and theatre venues include the Attucks Theatre, the Harrison Opera House, Chrysler Museum, and the “Theater District” which includes Chrysler Hall, Jeanne and George Roper Theater, Wells Theatre and the NorVa.

Cruise Norfolk The 80,000 square foot Half Moone Cruise & Celebration Center opened in spring 2007. The cruise terminal is located in the harbor between Town Point Park and Nauticus/Battleship Wisconsin. Norfolk is a homeport for Royal Caribbean International and Carnival ships, which provide regular service to Bermuda, the Bahamas and the Caribbean. During the 2008 cruise season, 90,000 cruise ship passengers traveled from Norfolk. Norfolk was selected by Porthole Cruise Magazine with the “2008 Editor-in-Chief Award” naming Norfolk “Best Up-and-Coming U.S. Homeport” and was also selected as one of the American Public Works Association’s Public Works Project of the Year for 2008.

Norfolk Airport Authority The Norfolk International Airport (the “Airport”) is served by American, Continental, Delta, Northwest, Southwest, United Express and US Airways. In 2008, 3.5 million passengers used the Norfolk, a 4.45% decrease from 2007. In addition, over 64 million pounds of cargo flowed through the airport. In Norfolk, service has remained stable over the past two years, with an average of 85 daily departures.

Hotel Development The City continues to be a national leader in hotel performance with growth in hotel occupancy rates. Currently there are several hotels under construction or proposed in Downtown Norfolk. A $73 million, 301 room, Westin hotel is planned to be built adjacent to a new city conference center at the corner of Granby and Main Streets. This 23-story building will include residential condos above the hotel as well as integrated parking. A nine-story, 160-room Residence Inn by Marriott located in Downtown Norfolk on Brambleton between Duke and Boush Streets is expected to open in April 2009.

Waterfront Recreation Investment Over $17 million of overall investment has been made recently along Norfolk’s waterfronts. Town Point Park, located downtown along the Elizabeth River, brings thousands of visitors downtown annually and generates both tax and parking revenue for the City. In 2007, visitor spending in the Park exceeded $27 million. Construction began in October 2008 on the first renovation in its 25 year history. In Ocean View, adjacent to the “Little Annapolis” retail portion of East Beach is Taylor’s Landing Boatel Marina, a $10 million private investment bringing 500 new recreational boat slips to the area. This marina complex is being expanded to include retail boat showrooms, a boat repair facility, condominiums and restaurant and retail offerings. East Beach, located on the Chesapeake Bay, was named one of the top restored beaches in America by the American Shore and Beach Preservation Association due in part to the investment of $2.5 million dollars in beach erosion funds.

Sports and Recreation Norfolk has several waterfronts with the Chesapeake Bay on its North boundary and two major rivers within its boundaries. The City has a public boat ramp in Willoughby Spit with access to the

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Chesapeake Bay, as well as the recently rehabilitated Haven Creek boat ramp with access to the Lafayette River. The golf courses are also located within the City. Norfolk is home to the Norfolk Tides, (a AAA minor league baseball team), the Norfolk Admirals (a AHL hockey team) and hosts Arena Racing USA on an indoor track. Old Dominion University will begin a football program in the fall of 2009, adding to the long-established football program at Norfolk State University.

Norfolk’s Educational Institutions Available within the City are a wide variety of educational facilities including public elementary, middle and high schools, private and parochial schools, two universities, one college, one community college and a medical school. Public Schools Norfolk public schools have a low pupil-teacher ratio with class sizes well below the national average. Norfolk offers innovative public school programs, which include Early Childhood Education, a unique, comprehensive program for three and four-year-olds and their parents located in the public housing community of Diggs Town, at the Park Place/Colonial Place Community Center and at Ocean Air Elementary. Approximately $90 million has been recently invested in Norfolk public schools facilities including . Facilities receiving renovations and new construction include Norview High School, Blair Middle School, Bay View Elementary, Granby High School, Taylor Elementary and the School of International Studies at Meadowbrook. The City is home to the Governor’s Magnet School for the Arts, Virginia’s only magnet school for the arts, which offers classes in performing or visual arts to approximately 300 students from six cities and two counties. The school system also has a program for gifted science students that enables them to study at Eastern Virginia Medical School.

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Student population for the past five fiscal years is shown in Table V-12.


Public Schools Student Population Fiscal Years Ended June 30, 2004 – 2008

Source: Virginia Department of Education. Superintendents Annual Report. Table 1, Membership. Higher Education Norfolk is home to five institutions of higher learning: Old Dominion University, Norfolk State University, Virginia Wesleyan College, Tidewater Community College and Eastern Virginia Medical School. Old Dominion University (“ODU”) is one of only 100 public research universities nationwide, with a full and part-time enrollment of over 22,000 students. Norfolk State University is Virginia’s largest public, historically black university and the seventh largest in the nation.

Institutional Technology Parks Old Dominion University – University Village. ODU, in partnership with the City, the Norfolk Redevelopment and Housing Authority, and private developers, has initiated a large scale, mixed-use redevelopment project. This redevelopment project, the University Village, will directly impact 75 acres (13 City blocks) and result in over $260 million in private and public investments. The project includes student housing, retail, a convocation center, parking, research/office buildings, apartments and a hotel. The research park, named Innovation Research Park, is one of a few research parks in the country located on the campus of its research institution. The second phase of the park is currently under construction. Norfolk State University – The Research and Innovations to Support Empowerment (“RISE”) Center. The RISE Center, located on the campus of Norfolk State University is designed to promote interaction between the university, the business sector and community and federal agencies in research and technology. The first phase of the Marie V. McDemmond Center for Applied Research houses classrooms, labs and offices for professors in areas such as materials research, engineering and computational science, as well as the office of research and technology.

Norfolk’s Medical Institutions Within the City, there are five general, acute care and specialized hospitals including Sentara Norfolk General Hospital (“Sentara Norfolk General”), Sentara Leigh Hospital, Bon Secours DePaul Medical Center, Children’s Hospital of The King’s Daughters (“CHKD”) and Lake Taylor Transitional Care Hospital (“Lake Taylor Transitional”). Sentara Norfolk General opened its new $100 million heart hospital in February 2006, a 112-bed, 254,000 square feet center. The heart hospital is leading the way for Sentara’s 2010 expansion plan for the medical complex. Lake Taylor Transitional rehabilitation department was recently awarded with the “Better Health Award of 2008” by Old Dominion University’s College of Health Science department for their innovation of being the first rehabilitation department in the area to “Wiihabilitate.” CHKD, the site of Virginia’s only free-standing, full-service pediatric

Fiscal Year

September 30 Membership Percent Change

2004 34,030 -0.93 2005 34,445 1.28 2006 34,063 -1.12 2007 33,593 -1.38 2008 32,947 -1.92

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hospital, has received permission to add 26 beds, bringing the hospital’s capacity to 212. The expansion is expected to be completed by November 2010.

The Virginia Port Authority In 1981, the General Assembly passed landmark legislation designed to unify the ports in southeastern Virginia Hampton Roads harbor under a single agency, the Virginia Port Authority, with a single operating company, the Virginia International Terminals, Inc. The Port of Virginia, one of the world’s largest natural deep-water harbors, is an integral part of Norfolk’s economy. The Virginia Port Authority is one of the top three ports on the east coast in terms of total value of port trade. Over 17.8 million tons of cargo shipped from the region’s three main marine cargo terminals in 2008. The cargo volume shipped in 2008 increased by 20.02% over the past five years. As a result of the events of September 11th, concern for security risk has increased. The Port of Virginia is one of the few U.S. Customs ports utilizing a computerized, truck-mounted gamma-ray machine to check containers’ density. This technology allows monitors to ensure that the cargo being tested is what it is supposed to be and takes only six seconds per container.

Table V-13 Virginia Port Authority Terminals

General Cargo Tonnage Calendar Years 2004 – 2008

Source: Virginia Port Authority. Port-related business increases at the Virginia International Terminals drive new capital investment into the region. By 2012, a 300-acre expansion of Norfolk International Terminal will be completed making it the largest inter-modal center in the United States.

Business, Industry and Commerce Several major companies are headquartered in Norfolk, including:

• Norfolk Southern, a Fortune 500 company and one of the country's largest railroad operators;

• Landmark Communications, one of the country's largest privately owned media companies with ownership of several daily newspapers, local TV stations, and specialty publications;

• Dominion Enterprises, a wholly-owned subsidiary of Landmark Communications, Inc., is a print and internet media group that includes numerous specialty publications and online classifieds;

• FHC Health Systems, one of the top 250 largest private companies in the country, specializing in health care management, health services, and online medical reports;

Calendar Year

Total General Cargo Tonnage

(000’s)

Percent Change over Previous

Year2004 14,858 6.25%2005 15,964 7.44%2006 16,583 3.88%2007 17,726 6.89%2008 17,833 0.60%

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• CMA CGM (America), Inc., one of the world’s largest container transportation and shipping company;

• Portfolio Recovery Associates, a firm whose primary business is the purchase, collection and management of defaulted customer receivables; and

• BlackHawk Products Group, which provides tactical gear such as holsters, body armor, and backpacks to the U.S. Defense Department and law enforcement agencies throughout the world.

Additionally, there are a large variety of industrial, commercial and service employers are located within the City. Table V-14 presents data regarding the major non-government employers in the City.

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Table V-14

City of Norfolk, Virginia Major Non-Government Employers in 3rd Quarter 2008

Company Number of Employees Product/Service 1,000+ Sentara Healthcare Health Care Network Children’s Hospital of the King’s Daughter Health Care Facilities Old Dominion University Education Norfolk State University Education Medical College of Hampton Roads Private College Norshipco Shipbuilders and Repairers Bon Secours DePaul Medical Center Health Care Facility Bank of America Card Services Corp. Banking and Credit Card Service Center Portfolio Recovery Association Financial Recovery Services 500 – 999 United Services Automobile Association Insurance Support Center Wal-Mart Retail Bank of America Banking Maersk Line Limited Shipping Company Virginia International Terminal Ports Landmark Communications, Inc. Newspaper and Media Sentara Health Management Healthcare Network The Titan Corporation Communication System Farm Fresh Retail ODU Research Foundation Research American Funds Service Company Financial Services Tidewater Community College Education Electronic Data Systems Corp Systems Analysis and Design Dominion Enterprises Electronic Media 7-Eleven Retail Tidewater Wholesale Grocery Retail CooperVision Inc. Contact Lens Manufacturing Virginia Wesleyan College Education CP&O LLC Port Services McDonald’s Retail CMA-CGM (America), Inc. Shipping Company 250 - 499 Food Lion Retail Personal-Touch Home Care, Inc. Comprehensive Home Care Services Colonna’s Shipyard Ship Builders and Repairers General Foam Plastics Corporation Plastic Extractions Lake Taylor Transitional, Inc. Health Services Office Team Office Staffing Services Amer-Force Craft Services, Inc. Craft Labor to the Marine and Industrial Sectors Metro Machine Corporation Ship Builders and Repairers Transit Management Company Transportation

Source: Virginia Employment Commission.

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Table V-15 is a representation of selected business and residential growth or expansion for the period 2008 - 2009.


Business Growth A Sampling of Business Activity in 2008-2009

Source: Economic Development Department, City of Norfolk, Virginia. E/N – Expansion or New; C/D/A – Completed, Under Development, or Announced

Company Type E/N C/D/AInvestment

(mil) 201 Twenty-One Mixed-use residential apartments & retail N D $ 40.00 Bay Village Condominiums Senior only residences N A $ 15.00 Belmont at Freemason Apartments N D $ 45.00 Capital Group/American Funds Financial E D $ 8.00 CMA CGM Americas Headquarters, shipping line E A $ 1.10 Commander Corporate Center Second office building for spec N A $ 12.00 Compass Youth Services 9,000 sf office/flex space E C $ 0.75 Dominion Enterprises Headquarters – Class A office space E C $ 51.00 East Beach Villas Mixed-use retail / residential N C n/a EVMS New education and research building N D $ 59.00 Fort Norfolk Plaza Mixed-use medical office, retail N D $ 70.00 Ghent Station Mixed-use Class A office, retail N D $ 30.00 Gold's Gym Building rehabilitation and reuse N C $ 8.00 Grandy Village Renovation and market rate waterfront residential E D $ 35.00 Hampton Inn Hotel N A $ 20.00 Harbor Heights Mixed-use residential, grocery and TCC offices N C $ 38.00 Harris Teeter Expansion Demolition of existing and construction of new grocery store E A n/a Kroc Center Community center N A $ 84.00 Lamberts Point Recreation facility N C $ 7.60 La Quinta Hotel N C $ 8.00 Midtown Office Tower New office tower N A $ 27.00 New Cranes at NIT Arrived May 08 (3) N C $ 24.00 Norfolk State University (NSU) Library and student center N A $ 75.00 Old Dominion University (ODU) Innovations Research Park II N D $ 22.50 Old Dominion University (ODU) Allocated from Governor's budget request N A $ 86.00 Old Dominion University (ODU) Bookstore N C $ 8.50 Old Dominion University (ODU) Art galleries and parking deck N C $ 11.00 Old Dominion University (ODU) Student fitness center N C $ 28.00 Old Dominion University (ODU) Football stadium renovation and new parking garage E D $ 24.80 Old Point National Bank New branch office in Ghent E C $ 2.80 P & P, LLC Office/flex (4th building on site) E D $ 1.00 Residence Inn by Marriott Extended-stay hotel N C $ 35.00 Riverside Terrace / Westport Phasing townhouses and condominiums N D $ 80.00 Sentara Offices 48,000 sq ft office Poplar Halls N C $ 9.00 Sheraton Hotel Renovation E C $ 32.00 SouthWind Apartment Community 120 apartments N C $ 15.00 SpringHill Suites by Marriott Hotel N C $ 11.00 TCC Student center N A $ 17.60 The Franklin Mixed-use upscale condominiums and professional offices N C $ 15.00 The Market at Ghent Expansion to existing Farm Fresh store E C $ 3.00 The River House Apartments 197 apartments N D $ 36.00 The Tide Light Rail starter system N D $ 288.00 U.S. Gypsum Manufactures building materials E C $ 132.00 Villages at Broad Creek Residential/retail N A $ 82.00 Virginia Arts Festival Headquarters Offices and rehearsal studios N A $ 3.50 Virginia Zoo Trail of the Tiger E D $ 12.00 Wells Fargo Center Mixed-use Class A office, retail and residential N D $ 170.00 Wal-Mart Neighborhood Grocery Renovation to old grocery store N C $ 30.00 Westin Hotel & Conference Center Hotel and conference center N D $ 150.00

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Military The presence of the military in Norfolk has a significant impact on the local economy. The City is the home of the world’s largest naval complex, with headquarters for Commander in Chief of U.S. Atlantic Command, NATO’s Supreme Allied Command Atlantic, Commander in Chief U.S. Atlantic Fleet and other major naval commands. Hampton Roads is the largest center of Coast Guard units in the world with the Atlantic Area Command and Maritime Defense Zone Atlantic in Portsmouth and its Maintenance & Logistic Command Atlantic headquarters in downtown Norfolk. The U.S. Navy’s direct economic impact on the region was $13.9 billion in 2007, comprised of a total annual payroll of $7.8 billion and the balance consumed on goods and services and procurement contracts. The City expects to continue as a center of activity for the U.S. Navy with current total personnel (military and civilian) in excess of 69,000. There were 80,389 active-duty U.S. Navy military personnel in Hampton Roads in 2007, of which 68% were assigned to Norfolk. The Navy’s newest local command, the Navy Reserve Forces Command, is relocating to Norfolk from New Orleans in 2009. The Reserve Forces Command is the global headquarters for more than 68,000 reserve sailors and will bring approximately 450 military and civilian employees to Hampton Roads. The Command is responsible for readiness, oversight, manpower management, logistics, mobilization and training of reserve sailors. Although the military remains a key part of Hampton Roads’ economy, the region has successfully diversified its economy in recent years.

APPENDIX A

CITY OF NORFOLK, VIRGINIA GENERAL PURPOSE FINANCIAL

STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2008

MANAGEMENT’S DISCUSSION

AND ANALYSIS

(Unaudited)

CITY OF NORFOLK, VIRGINIA MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)

For the Fiscal Year Ended June 30, 2008

3

The management of the City of Norfolk (the “City”) provides this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2008. As readers, you are encouraged to read this discussion and analysis in conjunction with the transmittal letter and City’s financial statement information included in this report. Financial Highlights

• The assets of the City exceeded its liabilities at the close of fiscal year 2008 by $739,075,748 (net assets). Of this amount, $163,303,320 (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors. Although total net assets decreased by $33,524,698, unrestricted net assets increased $1,451,232.

• As of the close of the current fiscal year, the City’s governmental funds reported

a combined ending fund balance of $234,364,237, an increase of $37,432,904 in comparison with the prior year. This increase was primarily attributable to the Capital Project’s fund receiving over $134 million from the sale of capital improvement bonds during the fiscal year. Approximately $134,793,000 is available for spending at the government’s discretion (unreserved fund balance).

• At the end of the current fiscal year, the total unreserved fund balance for the

general fund was $56,301,954 or 6.94 percent of the general fund budget. • The City’s total outstanding bonded indebtedness increased by $174,405,878

during the current fiscal year.

Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City’s basic financial statements. The financial section of this report includes management’s discussion and analysis, the basic financial statements and required supplementary information. The basic financial statements are comprised of three components: 1) government-wide financials statements, 2) fund financial statements and 3) notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements – The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City’s assets and liabilities, with the difference between the two reported as net assets. Over time,



4

increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City that are mainly supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their cost through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, highways and streets, sanitation, economic development, public health, and culture and recreation. The business-type activities of the City include Water Utility, Wastewater Utility and Parking Facilities enterprise activities. The government-wide financial statements include not only the City itself (known as the primary government), but also the following legally separate component units for which the City is financially accountable: Norfolk Public Schools (“School Board”) and the Norfolk Community Services Board (“CSB”). Financial information for these component units is reported separately from the financial information presented for the primary government and can be found on pages 28 - 29 of this report. Fund financial statements – A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. In the basic financial statements, the emphasis is on major funds. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of a fiscal year. Such information may be useful in evaluating the City’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers can better understand the long-term



5

impact of the government’s near-term financing decisions. A reconciliation between the government-wide financial statements and the fund financial statements is included as part of the basic financial statements. The City maintains 16 individual governmental funds. Information is presented separately in the governmental fund balance sheet and governmental fund statement of revenues, expenditures and changes in fund balance for the general, capital projects and debt service funds, all of which are considered major funds. All other governmental funds are combined in a single, aggregated presentation. Individual fund data for each of the non-major funds are presented separately in the form of combining statements elsewhere in this report. The City adopts an annual budget for its various funds. To demonstrate compliance with this budget, budgetary comparison statements have been provided in this report. The basic governmental fund financial statements can be found in pages 19-22 of this report. Proprietary funds – The City maintains two types of proprietary funds: enterprise and internal service. The enterprise funds are used to account for its Water Utility, Wastewater Utility, and Parking Facilities operations. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Internal service funds are an accounting mechanism to accumulate and allocate costs internally among the City’s functions. The City has two internal service funds, Fleet Maintenance and Storehouse operations. Because both of these services predominantly benefit governmental functions, they are included within the governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements only in more detail. The proprietary fund financial statements provide separate information for the Water and Wastewater Utilities and the Parking Facilities operations, all of which are considered major funds. Conversely, the internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is provided in the form of combining statements in this report. The basic proprietary fund financial statements can be found on pages 23-25 of this report. Fiduciary funds are used to account for resources held for the benefit of parties outside the City. The fiduciary funds of the City include the City’s pension trust fund, the



6

Commonwealth of Virginia agency fund and another agency fund. Fiduciary funds are not included in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used in proprietary funds. The fiduciary fund financial statements can be found in pages 26-27 of this report. Notes to the financial statements – The notes provide additional information that is essential for a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found beginning on page 30. Other Information – In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension and other post-employment benefits to its employees. Required supplementary information can be found on pages 83-86 of this report. The combining statements referred to earlier in connection with nonmajor governmental funds and internal service funds are presented on pages 87-90 of this report.

Government-wide Financial Analysis Over time, net assets may serve as a useful indicator of the City’s financial position. In the case of the City, assets exceeded liabilities by $739,075,748. By far, the largest portion of the City’s net assets, $566,376,338 is its investment in capital assets (e.g., land, buildings, machinery, and equipment) less any outstanding debt related to acquiring the assets. These capital assets are used to provide services to citizens and are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other resources, since the capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net assets, approximately 1.3 percent represent resources that are subject to external restrictions on how they may be used. The remaining balance of $163,303,320 of unrestricted net assets may be used to meet the City’s ongoing obligations to citizens and creditors.



7

2008 2007 2008 2007 2008 2007

Current and Other Assets 332,622,875$ 271,839,863$ 139,159,421$ 84,433,802$ 471,782,296$ 356,273,665$ Capital Assets 827,222,677 797,437,136 737,541,174 708,201,560 1,564,763,851 1,505,638,696$ Total Assets 1,159,845,552 1,069,276,999 876,700,595 792,635,362 2,036,546,147 1,861,912,361

Long-Term Liabilities 668,105,265 557,590,347 546,309,678 467,437,702 1,214,414,943$ 1,025,028,049$ Other Liabilities 68,760,430 44,488,570 14,295,026 19,795,296 83,055,456 64,283,866$ Total Liabilities 736,865,695 602,078,917 560,604,704 487,232,998 1,297,470,399 1,089,311,915

Net Assets: Invested in Capital Assets Net of Related Debt 325,172,979 332,987,759 241,203,359 268,503,204 566,376,338 601,490,963$ Restricted 6,890,090 6,731,395 2,506,000 2,526,000 9,396,090 9,257,395$ Unrestricted 90,916,788 127,478,928 72,386,532 34,373,160 163,303,320 161,852,088$ Total Net Assets 422,979,857$ 467,198,082$ 316,095,891$ 305,402,364$ 739,075,748$ 772,600,446$

Governmental Activities Business-Type Activities Totals

Summary of the City of Norfolk's Net Assets

For governmental activities, total net assets decreased by $44,218,225 or 9.5 percent overall during the current fiscal year. Factors that contributed to a change in total governmental net assets include: an increase in governmental fund balances of $37,432,904 (19.0 percent), an increase in internal service fund net assets of $548,711 (5.0 percent) and an increase in capital assets net of accumulated depreciation of $29,902,725 (3.8 percent). The overall decrease in total government net assets was driven by increased liabilities of $112,102,565 (21.1 percent). These liabilities primarily reflect the increase in bonds payable for the governmental funds of $107,702,962 (18.2 percent) as the City issued bonds during the year based on cash flow requirements for capital projects. For business-type activities, net assets increased by $10,693,527 or 3.5 percent during the fiscal year. Of this amount, $5,528,958, $5,444,499 and $(279,930) are changes attributed to the Water Utility, the Wastewater Utility and the Parking Facilities funds, respectively. Key programmatic and functional elements of these changes in government wide net assets are demonstrated on the following page:



8

2008 2007 2008 2007 2008 2007

Revenues:Program Revenues: Charges for Services 40,198,559$ 37,250,718$ 119,582,149$ 113,729,454$ 159,780,708$ 150,980,172$ Operating Grants & Contributions 112,960,555 115,779,248 - - 112,960,555 115,779,248 Capital Grants & Contribtuions - - 219,018 730,636 219,018 730,636 General Revenues: Property Taxes 240,488,270 241,314,836 - - 240,488,270 241,314,836 Other Taxes 162,573,293 159,119,198 - - 162,573,293 159,119,198 Grants and Contributions not restricted for specific purposes 69,352,075 66,524,258 - - 69,352,075 66,524,258 Other 17,250,107 11,447,155 6,134,674 6,620,027 23,384,781 18,067,182 Total Revenues 642,822,859 631,435,413 125,935,841 121,080,117 768,758,700 752,515,530

Expenses: General Government 113,141,978 113,279,140 - - 113,141,978 113,279,140 Judicial Administration 48,593,034 46,943,748 - - 48,593,034 46,943,748 Public Safety 126,608,878 111,803,398 - - 126,608,878 111,803,398 Public Works 118,887,770 119,176,252 - - 118,887,770 119,176,252 Health and Public Assistance 95,233,711 93,774,433 - - 95,233,711 93,774,433 Culture and Recreation 56,889,946 52,965,158 - - 56,889,946 52,965,158 Community Development 15,345,403 14,771,583 - - 15,345,403 14,771,583 Education 101,094,910 97,594,910 - - 101,094,910 97,594,910 Interest on Long-Term Debt 21,457,483 19,618,419 - - 21,457,483 19,618,419 Water Utility - - 64,876,844 60,510,576 64,876,844 60,510,576 Wastewater Utility - - 18,614,267 17,377,348 18,614,267 17,377,348 Parking - - 21,539,174 18,861,388 21,539,174 18,861,388 Total Expenses 697,253,113 669,927,041 105,030,285 96,749,312 802,283,398 766,676,353

Increase (decrease) in Net Assets before Transfers (54,430,254) (38,491,628) 20,905,556 24,330,805 (33,524,698) (14,160,823) Transfers 10,212,029 10,988,120 (10,212,029) (10,988,120) - - Increase (decrease) in Net Assets (44,218,225) (27,503,508) 10,693,527 13,342,685 (33,524,698) (14,160,823) Net Assets Beginning of Year 467,198,082 494,701,590 305,402,364 292,059,679 772,600,446 786,761,269 Net Assets End of Year 422,979,857$ 467,198,082$ 316,095,891$ 305,402,364$ 739,075,748$ 772,600,446$


Changes in the City of Norfolk's Net Assets

Governmental Activities: Revenues by Source

Other taxes25%

Property taxes37%

Operating grants & contributions

18%

Charges for services6%

Other3%

Grants and contributions not

restricted for special purposes

11%



9

Governmental Activities – Property taxes and other tax revenues increased 0.66 percent to $403,061,563 and comprise 62.70 percent of total governmental revenues. Operating grants and contributions for governmental activities ended the fiscal year at $112,960,555 a decrease of $2,818,693 over the prior year. Grants and contributions not restricted for specific programs represent intergovernmental grants and contributions from State and federal agencies. For the 2008 fiscal year, the City reported $69,352,075 in grants and contributions not restricted for specific programs. Depreciation expense for governmental activities of $72,808,342 was recorded.

Governmental ActivitiesExpenses and Program Revenues

$- $20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

Interest on Long-Term Debt

Education

Community Development

Culture and Recreation

Health and Public Assistance

Public Works

Public Safety

Judicial Administration

General Government

Expenses Program Revenues



10

Business-type Activities – Business-type activities increased the City’s net assets by $10,693,527. Key elements of this change are as follows:

• Revenue from charges for services for business-type activities increased by 5.15 percent. The Water and Wastewater Utility funds account for this increase.

• Water utility and wastewater utility charges for services increased $4,424,056 and $2,602,927, respectively, due to rate increases and an additional water wholesale customer. As part of the City’s utility rate plan to improve utility infrastructure throughout the City, the Water and Wastewater Utility rates were increased by $0.12/100 cubic feet and $0.11/100 cubic feet, respectively. Water consumption and wastewater volumes did not increase appreciably during the fiscal year.

• Parking revenues decreased $1,174,288 or 5.44 percent from the prior year, primarily as a result of closure of certain locations during construction of two new parking garages that will add additional capacity to the system in future years.

Business-Type Activities:Revenues by Source

Other5%

Charges for Services

95%

Operating expenses for Business type activities increased overall by $5,465,319 or 7.20 percent. The Water Utility fund increased operating expenses $4,205,191 primarily a result of increase of energy and chemical costs. Energy increased 22 percent while chemicals increased 3 percent from the previous year. Management increased the allowance for bad debt in both the Water and the Wastewater utility funds to reflect the potential impact of the rate increases noted above and challenging economic environment facing many customers.



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Overall, operating expenses in the Wastewater Utility fund were level from the prior year after a $1,315,831 reduction in plant operations due to a decrease in major emergency repairs to pipes and pumps and other one-time expenses in the prior fiscal year. The reduction in plant operation expenses was offset by an increase of $1,256,613 in noncash expenses, provision for bad debts, depreciation, and other reserves, related to the increase in net capital assets reflecting the fund’s continued improvement of the wastewater system.

Business Type Activities - Expenses and Program Revenues

- 10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

Water

Wastewater

Parking

Expenses Program Revenues

Financial Analysis of the Government’s Funds As previously noted, the City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental Funds – The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. This information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.



12

At the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $234,364,237, an increase of $37,432,904 or 19.0 percent. Of the total ending fund balance, $99,571,442 or 42.5 percent is reserved. The reserved fund balance is that portion of the fund balance that is not available for new spending because it has already been committed to 1) liquidate contracts and purchase orders ($92,681,352), 2) to generate income to pay for the perpetual care of the municipal cemetery ($6,293,375) and 3) for a variety of other restricted purposes ($596,715). The remaining $134,792,795 or 57.5 percent of ending fund balance in the City’s governmental funds is available for spending at the government’s discretion. The City’s primary governmental fund is its general fund. As a matter of fiscal policy, the City undesignated, unreserved fund balance is equal to five percent of the general government’s and School Board’s annual operating budgets, or $40,536,112. The City designated $15,765,842 of its fund balance for future expenditures related to a potential general economic downturn and for its self-insured workers’ compensation and general liability programs. For the general fund, on the budgetary basis of accounting, the City ended the fiscal year with revenues below projections by $3,996,265. Total expenditures were less than appropriations by $5,484,459. General fund financial and budgetary highlights of the 2008 fiscal year include:

• As a result of strong housing and commercial property markets, current and delinquent real property tax revenues exceeded budgetary projections by $3,421,450;

• Other local tax collections were less than budgetary projections by $3,165,827. A significant portion of this shortfall was created from weaker collections from sales and business license taxes. Communications taxes were greater than anticipated by $1,619,360 primarily as a result of improvements in collections from telecommunications companies at the state level;

• Aid from the Commonwealth for local law enforcement, Virginia Juvenile Community Crime Control Act, maintenance of roads affected by Virginia Port activities, and shared expenses for the constitutional officers were less than budgetary projections by $1,012,183 as a result of the Governor’s October budget reduction plan to address a $641 million state budget shortfall in the current biennium;

• Aid from the Commonwealth for education was less than budgetary projections by $1,616,890 as a result of lower growth in sales tax collections for education at the statewide level. The state had the weakest annual increase in sales tax collections since 2003 fiscal year; and

• Federal categorical aid in support of the school system was $1,179,159 less than budgetary projections due to fewer enrolled students.



13

• Expenditure savings included savings from refuse disposal costs due to lower tonnage and savings that occurred in the debt service budget due to timing of bond payments. Expenditure increases were slightly offset by increases in Police and Fire and Rescue overtime costs. Planned expenditure savings of $3.0 million will be used to supplement the Fiscal Year 2009 budget.

Supplemental appropriations or amendments of the total 2008 general fund budget were:

General Fund:

Approved Fiscal Year 2007-2008 budget 795,835,700$ Supplemental appropriations from additional revenue:

Anticipated revenue from Norfolk Redevelopment and Housing Authority for rent 300,000

Supplemental appropriations from general fund fund balance:

Additional funds appropriated from fund balance for various programs 9,186,521

Additional funds appropriated to cover costs associated with capital improvement increases 5,400,000 Total supplemental appropriations 14,886,521

Final budget 810,722,221$

The Capital Projects fund, another major governmental fund, expended $111,425,875 on major capital improvements during the fiscal year. The fund had a total fund balance of $121,690,475. In the 2008 fiscal year, the City sold $134,342,471 in general obligation bonds to fund these expenditures. The Debt Service fund does not have any assets, liabilities or net assets at fiscal year end. During the year $58,921,220 were transferred in from various funds to pay for an equal amount of debt service requirements. Proprietary Funds – The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Factors concerning the finances of these funds have already been addressed in the discussion of the City’s business-type activities.

Capital Asset and Debt Administration Capital Assets – The City’s investment in capital assets, net of related debts, for its governmental and business-type activities as of June 30, amounted to $566,376,338. The investment in capital assets includes land, buildings, improvements, infrastructure (streets, roads, bridges, highways, etc) machinery, and equipment. Infrastructure assets represent 31.18 percent of total general governmental assets.



14

Some of the major capital asset events during the current fiscal year include:

• Commencement of construction on the City’s 7.4 mile light rail project; • Acquisition of property to support strategic development projects for over $10

million to include Southside initiatives and rights-of-way for light rail development; • Acquisition of the historic Seaboard building and preparing it to become the site

of the new downtown main library, investing over $7 million; • Expending over $3 million to complete the new Pretlow Anchor Branch Library,

which opened during the fiscal year; • Investment of well over $4 million in upgraded Police Training Facilities; • Nearly $2 million in continued Atlantic City / Fort Norfolk infrastructure

improvements; • Investment of nearly $6 million during the year for the Norview Recreation

Center; • Expenditures of $3 million toward the replacement of Coleman Place Elementary

and nearly $8 million overall in total school-related capital projects; • $6 million of various neighborhood conservation efforts continued in the City; • $3 million of infrastructure improvements were continued at the City’s Broad

Creek Renaissance neighborhood revitalization area and another $3 million towards the Kroc Center development;

• Investment of $6 million in maintenance and repairs to various bridges throughout the City; and

• Infrastructure improvements related to the downtown conference center continued. During the year, the City spent nearly $3 million on such improvements.

2008 2007 2008 2007 2008 2007Land 40,351,264$ 37,896,651$ 48,287,029$ 43,099,824$ 88,638,293$ 80,996,475$ Buildings & equipment 398,558,052 351,956,487 632,012,058 617,086,005 1,030,570,110$ 969,042,492$ Improvements other than buildings 16,418,778 14,779,778 4,203,933 4,338,874 20,622,711$ 19,118,652$ Construction in progress 114,761,897 99,768,040 53,038,154 43,676,857 167,800,051$ 143,444,897$ Infrastructure 257,132,686 293,036,180 - - 257,132,686$ 293,036,180$

Total 827,222,677$ 797,437,136$ 737,541,174$ 708,201,560$ 1,564,763,851$ 1,505,638,696$


Summary of the City of Norfolk's Capital Assets(net of accumulated depreciation)

Additional information on the City’s capital assets can be found in Note VII on pages 49-50 of this report. Long-term Debt – At June 30, 2008 the City (including the enterprise funds) had total bonded debt outstanding of $1,116,049,069. Of this amount, $695,230,236 comprises debt backed by the full faith and credit of the City. The remainder of the City’s debt represents bonds secured solely by specified revenue sources (i.e., revenue bonds).



15

A summary of the City’s outstanding bonded debt is as follows:

2008 2007 2008 2007 2008 2007

General obligation bonds 571,138,165$ 469,498,450$ 124,092,071$ 107,310,741$ 695,230,236$ 576,809,191$ Revenue bonds - 420,818,833 364,834,000 420,818,833 364,834,000

Total 571,138,165$ 469,498,450$ 544,910,904$ 472,144,741$ 1,116,049,069$ 941,643,191$

City of Norfolk's Bonded Debt


The City’s total debt outstanding increased by $174,405,876 (18.52 percent) during the current fiscal year. The City issues debt, in part, based on its cash flow capital needs which is the primary factor for this increase. The development of the City’s 5-year Capital Improvement Program and its related debt are guided by various debt affordability practices. These practices limit total tax supported (not supported by specific fees or charges) debt as follows:

• Bonded debt service requirements will not exceed ten percent of general governmental expenditures; and

• Bonded debt outstanding will not exceed 3.5 percent of the assessed value of taxable real property in the City.

Business type activities debt practices are governed by revenue bond indentures in addition to various rate affordability measures. Credit ratings for the City’s general obligation and water revenue bond programs are as follows:

Bonding Program

Fitch

Ratings

Standard and Poor’s

Moody’s

Investors ServiceGeneral Obligation AA AA A1 Water Revenue AA AA+ A1

The City’s parking and wastewater systems do not maintain an underlying credit rating. State statutes limit the amount of general obligation debt the City may issue to ten percent of its total assessed valuation. The current debt limitation for the City is $1,840,185,107 which is significantly in excess of the City’s general obligation debt outstanding. Additional information on the City’s long-term debt can be found in Note VIII on pages 51-61 of this report.



16

Economic Factors and Next Year’s Budgets and Rates

• Taxable assessments for commercial and housing property markets are projected to continue to expand in the 2009 fiscal year by 5.5 percent;

• Other local taxes have not experienced a significant downturn and some are predicted to slightly increase. The following reflects major other tax change projections:

o Sales taxes – 0.3 percent decrease; o Business license taxes – no change; o Restaurant food taxes – 3.1 percent increase; o Hotel and motel tax – 8.4 percent increase; and

• Rate increases for both the Water and Wastewater utility funds continue to provide necessary funding to finance capital improvements.

All of these factors were considered in preparing the City’s budget for fiscal year 2009. The City appropriated $6,895,800 of its General Fund balance for use in the fiscal year 2009 budget for non-recurring types of expenditures. There were no changes in tax rates for the 2009 fiscal year. The following represents changes in fees implemented with the budget for the 2009 fiscal year:

Description FY 2009 Approved FY 2008 Approved Wastewater Fees $2.89/100 cubic feet $2.78/100 cubic feet Water Fees $3.61/100 cubic feet $3.49/100 cubic feet Stormwater Fees – Residential $8.09/month $7.83/month Stormwater Fees – Commercial $5.54/month per 2,000 sq. ft. $5.39/month per 2,000 sq. ft.

Requests for Information This financial report is designed to provide a general overview of the City’s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Director of Finance and Business Services, 810 Union Street, Suite 600, Norfolk, Virginia, 23510.

BASIC FINANCIAL

STATEMENTS

CITY OF NORFOLK, VIRGINIA Exhibit 1

Governmental Business-Type Component

Activities Activities Total UnitsASSETSCash and short term investments 93,847,216$ 44,852,932$ 138,700,148$ 16,227,468$ Restricted cash held with fiscal agent - 10,437,283 10,437,283 - Investments 131,209,629 - 131,209,629 4,229,827 Receivables, net Taxes 45,118,526 - 45,118,526 - Accounts 7,967,148 18,127,086 26,094,234 1,697,413 Notes 47,276 - 47,276 - Accrued investment income 9,811 122,377 132,188 28,848 Other - 232,754 232,754 489,544 Internal balances 13,828,083 (13,828,083) - 18,740,077 Due from other governments 31,227,329 - 31,227,329 28,597,518 Prepaid expenses 15,500 - 15,500 - Inventories 2,259,838 2,193,762 4,453,600 971,548 Restricted cash and investments 92,519 76,677,594 76,770,113 - Other assets 7,000,000 343,716 7,343,716 76,917 Non-depreciable capital assets 155,113,161 101,325,183 256,438,344 487,500 Depreciable capital assets, net 672,109,516 636,215,991 1,308,325,507 72,481,817 Total assets 1,159,845,552 876,700,595 2,036,546,147 144,028,477 LIABILITIES Vouchers payable 20,290,390 5,181,391 25,471,781 11,846,993 Employees withholdings 870,818 - 870,818 - Contract retainage 1,592,317 1,360,149 2,952,466 86,243 Accrued interest 6,918,429 3,057,650 9,976,079 - Accrued payroll 4,999,890 443,382 5,443,272 25,969,489 Accrued expenses 5,959 - 5,959 - Due to other agencies - - - 2,342,465 Due to other governments 8,336,364 - 8,336,364 - Due to other primary gov/component units 18,740,077 - 18,740,077 - Other current liabilities 6,413,208 1,474,289 7,887,497 45,718 Unearned revenue 592,978 - 592,978 274,322 Liabilities payable from restricted assets - 2,778,165 2,778,165 - Long-term liabilities Due within one year 97,255,214 27,350,757 124,605,971 4,883,405 Due in more than one year 570,850,051 518,958,921 1,089,808,972 10,738,496 Total liabilities 736,865,695 560,604,704 1,297,470,399 56,187,131 NET ASSETS Invested in capital assets, net of related debt 325,172,979 241,203,359 566,376,338 72,969,317 Restricted for: Perpetual care - nonexpendable 6,293,375 - 6,293,375 - Capital projects 36,715 2,506,000 2,542,715 960,653 Retirees' life insurance-future expenditures 560,000 - 560,000 - Other programs - - - 157,132 Unrestricted 90,916,788 72,386,532 163,303,320 13,754,244 Total net assets 422,979,857$ 316,095,891$ 739,075,748$ 87,841,346$

Primary Government

June 30, 2008Statement of Net Assets

17

The accompanying notes are an integral part of the basic financial statements.

CITY OF NORFOLK, VIRGINIA Exhibit 2

Net (Expense) Revenue and Changes in Net Assets

OperatingCharges for Grant Capital Grant Governmental Business-Type Component

Functions/Programs Expenses Services Contributions Contributions Activities Activities Total UnitsPrimary government:Governmental activities: General government 113,141,978$ 2,169,244$ 15,537,696$ -$ (95,435,038)$ -$ (95,435,038)$ -$ Judicial administration 48,593,034 931,061 27,776,138 - (19,885,835) - (19,885,835) - Public safety 126,608,878 2,306,858 2,936,690 - (121,365,330) - (121,365,330) - Public works 118,887,770 27,156,019 20,250,555 - (71,481,196) - (71,481,196) - Health and public assistance 95,233,711 165,891 40,401,273 - (54,666,547) - (54,666,547) - Culture and recreation 56,889,946 6,709,869 3,649,255 - (46,530,822) - (46,530,822) - Community development 15,345,403 759,617 2,408,948 - (12,176,838) - (12,176,838) - Education 101,094,910 - - - (101,094,910) - (101,094,910) - Interest on long-term debt 21,457,483 - - - (21,457,483) - (21,457,483) - Total governmental activities 697,253,113 40,198,559 112,960,555 - (544,093,999) - (544,093,999) -

Business-type activities: Water 64,876,844 74,239,988 - 175,778 - 9,538,922 9,538,922 - Wastewater 18,614,267 24,917,036 - 43,240 - 6,346,009 6,346,009 - Parking facilities 21,539,174 20,425,125 - - - (1,114,049) (1,114,049) - Total business-type activities 105,030,285 119,582,149 - 219,018 - 14,770,882 14,770,882 - Total primary government 802,283,398 159,780,708 112,960,555 219,018 (544,093,999) 14,770,882 (529,323,117) -

Component units: Norfolk Public Schools 379,570,982 6,250,202 224,042,387 8,940,943 (140,337,450)$ Community Services Board 23,944,721 7,240,138 12,953,441 - (3,751,142) Total component units 403,515,703$ 13,490,340$ 236,995,828$ 8,940,943$ (144,088,592)

General revenues: Taxes: General property taxes - real estate and personal property 240,488,270 - 240,488,270 - Consumers' utility taxes 46,582,343 - 46,582,343 - Sales and use taxes 31,791,070 - 31,791,070 - Restaurant food taxes 28,757,646 - 28,757,646 - Business license taxes 26,343,065 - 26,343,065 - Hotel/Motel taxes 8,369,738 - 8,369,738 - Cigarette taxes 7,576,528 - 7,576,528 - Admissions taxes 3,904,592 - 3,904,592 - Motor vehicle licenses 3,498,262 - 3,498,262 - Franchise, recordation and other miscellaneous local taxes 5,750,049 - 5,750,049 - Interest and investment earnings 5,307,113 3,046,304 8,353,417 2,837,167 Grants and contributions not restricted to specific programs 69,352,075 - 69,352,075 - Miscellaneous 11,880,653 3,088,370 14,969,023 90,870 Gain (loss) from sale of assets 62,341 - 62,341 (16,189) Commonwealth of Virginia - - - 32,292,231 Payment from primary governement - - - 104,795,910 Transfers 10,212,029 (10,212,029) - - Total general revenues and transfers 499,875,774 (4,077,355) 495,798,419 139,999,989 Changes in net assets (44,218,225) 10,693,527 (33,524,698) (4,088,603)Net assets - beginning 467,198,082 305,402,364 772,600,446 91,929,949Net assets - ending 422,979,857$ 316,095,891$ 739,075,748$ 87,841,346$

Primary Government

Statement of ActivitiesFor the Year Ended June 30, 2008

Program Revenues

18The accompanying notes are an integral part of the basic financial statements.

CITY OF NORFOLK, VIRGINIA Exhibit A-1

Non-major Total

General Capital Debt Governmental GovernmentalFund Projects Service Funds Funds

ASSETSCash and short term investments 51,735,145$ -$ -$ 37,717,075$ 89,452,220$ Investments - 131,137,629 - 72,000 131,209,629 Receivables, net Taxes 45,118,526 - - - 45,118,526 Accounts 2,531,218 - - 5,019,830 7,551,048 Notes 47,276 - - - 47,276 Accrued investment income 9,811 - - - 9,811 Due from other funds 4,113,067 12,120,834 - 6,826,381 23,060,282 Due from other governments 22,159,547 - - 9,067,782 31,227,329 Prepaid expenses - - - 15,500 15,500 Deposit with contractors - 89,435 - 3,084 92,519 Other assets - 7,000,000 - - 7,000,000 Total assets 125,714,590$ 150,347,898$ -$ 58,721,652$ 334,784,140$

LIABILITIES Vouchers payable 9,405,462$ 7,857,289$ -$ 2,463,593$ 19,726,344$ Employee withholdings 870,818 - - - 870,818 Contract retainage - 1,400,597 - 191,720 1,592,317 Accrued payroll 4,641,025 1,090 - 286,874 4,928,989 Accrued expenses - - - 5,959 5,959 Due to other funds 6,648,265 678,703 - 1,717,796 9,044,764 Due to other governments - - - 8,336,364 8,336,364 Due to component units - 18,716,372 - 23,705 18,740,077 Unearned revenue 29,948,443 - - 812,620 30,761,063 Other liabilities 6,229,389 3,372 - 180,447 6,413,208 Total liabilities 57,743,402 28,657,423 - 14,019,078 100,419,903 FUND BALANCESReserved for: Encumbrances 11,109,234 57,185,721 - 24,386,397 92,681,352 Perpetual care - - - 6,293,375 6,293,375 Capital projects - - - 36,715 36,715 Retirees' life insurance - future expenditures 560,000 - - - 560,000 Unreserved, reported in: General Fund-Designated future expenditures 15,765,842 - - - 15,765,842 Capital Projects fund-Designated future expenditures - 64,504,754 - - 64,504,754 General Fund - Undesignated 40,536,112 - - - 40,536,112 Special Revenue Funds - - - 13,986,087 13,986,087 Total fund balances 67,971,188 121,690,475 - 44,702,574 234,364,237 Total liabilities and fund balances 125,714,590$ 150,347,898$ -$ 58,721,652$ 334,784,140$

Balance Sheet - Governmental Funds June 30, 2008

Major Funds

19

The accompanying notes are an integral part of the basic inancial statements.


Fund balances--total governmental funds 234,364,237$

Amounts reported for governmental activities in the Statement ofNet Assets are different because:

Capital assets used in governmental activities are not financial resources and therefore are not reported

in the funds : Cost of capital assets 2,028,006,435

Depreciation expense to date (1,206,610,587)821,395,848

Other long-term assets are not available to pay for current-period expenditures and therefore are deferred in the funds :

Adjustment for deferred revenue 30,168,085

Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds :

Bonds and notes payable (573,138,165)Unamortized Bond premium (19,573,547)

Capital leases (3,285,441)Retirement contribution (23,585,256)

Other post employment benefits (5,439,766)Compensated absences (15,570,842)

Workers' compensation and claims liability (25,059,306)Other (1,803,692)

Accrued interest payable (6,918,429)(674,374,444)

11,426,131

Net assets of governmental activities 422,979,857$

Internal service funds

Reconciliation of the Balance Sheet of Governmental Fundsto the Statement of Net Assets

June 30, 2008

20

The accompanying notes are an integral part of the basic inancial statements.


Non-major TotalGeneral Capital Debt Governmental Governmental

Fund Projects Service Funds FundsREVENUESGeneral property taxes 238,739,614$ -$ -$ 2,550,300$ 241,289,914$ Other local taxes 153,068,673 - - 9,504,620 162,573,293 Permits and licenses 4,055,323 - - - 4,055,323 Fines and forfeitures 1,307,680 - - 9,580 1,317,260 Use of money and property 7,208,529 973,784 - 2,379,763 10,562,076 Charges for services 19,937,632 - - 20,221,028 40,158,660 Miscellaneous 4,792,166 7,130,254 - 6,000,862 17,923,282 Recovered costs 8,620,136 - - 1,460 8,621,596 Intergovernmental 122,498,492 - - 34,363,270 156,861,762 Total revenues 560,228,245 8,104,038 - 75,030,883 643,363,166 EXPENDITURES Current operating: General government 107,878,689 - - 3,095,511 110,974,200 Judicial administration 46,015,225 - - 1,316,062 47,331,287 Public safety 103,792,189 - - 12,415,341 116,207,530 Public works 42,909,508 - - 17,460,844 60,370,352 Health and public assistance 66,221,236 - - 28,938,292 95,159,528 Culture and recreation 41,205,827 - - 9,865,084 51,070,911 Community development 6,542,288 4,202,520 10,744,808 Education 101,094,910 - - - 101,094,910 Debt service: Principal - - 40,259,954 - 40,259,954 Interest and other charges - - 18,661,266 1,806,442 20,467,708 Capital outlay - 111,425,875 - 2,580,980 114,006,855 Total expenditures 515,659,872 111,425,875 58,921,220 81,681,076 767,688,043 Excess (deficiency) of revenues over expenditures 44,568,373 (103,321,837) (58,921,220) (6,650,193) (124,324,877) OTHER FINANCING SOURCES (USES) Issuance of debt 11,320,660 134,342,471 - - 145,663,131 Premium on bonds - 5,785,280 - - 5,785,280 Net appreciation - 62,341 - - 62,341 Transfers in 10,000,000 20,504,313 58,921,220 20,475,092 109,900,625 Transfers out (86,197,266) - - (13,456,330) (99,653,596) Total other financing sources and uses (64,876,606) 160,694,405 58,921,220 7,018,762 161,757,781 Net changes in fund balances (20,308,233) 57,372,568 - 368,569 37,432,904 Fund balances--beginning 88,279,421 64,317,907 - 44,334,005 196,931,333 Fund balances--ending 67,971,188$ 121,690,475$ -$ 44,702,574$ 234,364,237$

Major Funds

Statement of Revenues, Expenditures, and Changes in Fund Balances

For Fiscal Year Ended June 30, 2008Governmental Funds

21



Net change in fund balances--total governmental funds 37,432,904$ Amounts reported for governmental activities in the Statement of Activities aredifferent because:

Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the asset.

Add capital acquisitions net of disposals 102,666,692Subtract depreciation (72,505,836) 30,160,856

Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the fund. (761,745)

Bond and note proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Assets. Repayment of bond and note principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Asset.

Add debt repayment 40,341,765 Transfer general obligation bonds to parking fund 3,423,520

Premium on bond sale 5,785,280Principal increase in notes payable (2,000,000)

Accrued interest payable (741,493) General obligation bond proceeds (151,448,411) (104,639,339)

Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds

Change in non-capital long-term liabilities (Note VIII) (12,197,296)Principal paydown on capital leases 5,011,098Principal paydown on note payables 226,586 (6,959,612)

Internal service funds are used by management to charge the costs of of certain services to individual funds. The net revenue (expense) of the internal service funds is reported with governmental activity. 548,711

Change in net assets of governmental activities (44,218,225)$

Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance to the Statement of Activities

For the Year Ended June 30, 2008

22


CITY OF NORFOLK, VIRGINIA Exhibit B-1

GovernmentalActivities-

Waste- Parking Internal ServiceWater Water Facilities Totals Funds

ASSETSCurrent assets: Cash and short term investments 27,469,306$ 2,836,730$ 14,546,896$ 44,852,932$ 4,394,996$ Restricted cash held with fiscal agent 8,229,234 156,538 2,051,511 10,437,283 - Receivables, net Accounts 7,875,823 3,095,876 1,023,534 11,995,233 416,100 Unbilled accounts 4,561,975 1,235,700 334,178 6,131,853 - Accrued investment income 120,798 - 1,579 122,377 - Other 230,000 2,754 - 232,754 - Internal balances - - - - 88,400 Inventories 1,716,213 46,488 431,061 2,193,762 2,259,838 Other assets - - 343,716 343,716 - Restricted cash and investments 43,468,734 28,041,294 5,167,566 76,677,594 - Total current assets 93,672,083 35,415,380 23,900,041 152,987,504 7,159,334

Noncurrent assets: Capital assets: Land and improvements 36,480,589 22,335,760 42,508,834 101,325,183 415,000 Buildings and equipment 534,594,175 182,510,287 135,850,322 852,954,784 10,645,739 Accumulated depreciation (135,042,141) (41,711,085) (39,985,567) (216,738,793) (5,233,910) Capital assets, net 436,032,623 163,134,962 138,373,589 737,541,174 5,826,829 Total noncurrent assets 436,032,623 163,134,962 138,373,589 737,541,174 5,826,829Total assets 529,704,706 198,550,342 162,273,630 890,528,678 12,986,163

LIABILITIES Current liabilities: Vouchers payable 2,053,695 1,425,964 1,701,732 5,181,391 564,046 Contract retainage 651,101 487,270 221,778 1,360,149 - Accrued interest 265,200 772,900 2,019,550 3,057,650 - Accrued payroll 265,440 107,073 70,869 443,382 70,901 Internal balances 2,097,679 6,697,093 5,033,311 13,828,083 275,835 Obligations for employees retirement system 1,496,116 479,392 400,866 2,376,374 308,160 Current portion of bonds payable 11,807,731 6,150,117 3,482,958 21,440,806 - Liabilities payable from restricted assets 2,778,165 - - 2,778,165 - Compensated absences 657,900 218,163 119,899 995,962 237,649 Claims and judgments liability 2,537,615 - - 2,537,615 - Other current liabilities 550,571 341,059 582,659 1,474,289 - Total current liabilities 25,161,213 16,679,031 13,633,622 55,473,866 1,456,591 Noncurrent liabilities: General obligations payable 10,539,072 96,702,854 6,960,191 114,202,117 - Revenue bonds payable 309,969,201 7,359,833 85,604,396 402,933,430 - Compensated absences 272,300 112,137 158,937 543,374 95,738 Other long-term liabilities 1,280,000 - - 1,280,000 7,703 Total noncurrent liabilities 322,060,573 104,174,824 92,723,524 518,958,921 103,441 Total liabilities 347,221,786 120,853,855 106,357,146 574,432,787 1,560,032 NET ASSETS Invested in capital assets, net of related debt 115,739,567 80,476,182 44,987,610 241,203,359 5,819,126 Restricted - capital projects - - 2,506,000 2,506,000 - Unrestricted 66,743,353 (2,779,695) 8,422,874 72,386,532 5,607,005 Total net assets 182,482,920$ 77,696,487$ 55,916,484$ 316,095,891$ 11,426,131$

Business-Type Activities

Statement of Fund Net Assets - Proprietary Funds June 30, 2008

23



GovernmentalActivities

Waste- Parking Internal ServiceWater Water Facilities Totals Funds

Operating revenues: Charges for services 74,239,988$ 24,917,036$ 20,425,125$ 119,582,149$ 16,036,060$ Miscellaneous 2,915,980 172,390 - 3,088,370 115,675 Total operating revenues 77,155,968 25,089,426 20,425,125 122,670,519 16,151,735Operating expenses: Personal services 13,120,146 4,479,932 7,769,824 25,369,902 3,486,882 Cost of goods sold - - - - 10,094,890 Plant operations 6,625,810 2,059,011 916,813 9,601,634 251,869 Chemicals 3,446,908 96,869 - 3,543,777 - Provision for bad debts 710,185 577,686 - 1,287,871 15,672 Depreciation 11,096,511 3,702,273 3,873,999 18,672,783 302,506 Retirement and OPEB contribution 1,496,116 479,392 276,732 2,252,240 308,160 Administrative expenses 1,809,616 1,568,756 376,946 3,755,318 - Other 12,350,421 3,290,566 1,214,656 16,855,643 1,267,142 Total operating expenses 50,655,713 16,254,485 14,428,970 81,339,168 15,727,121 Operating income, net 26,500,255 8,834,941 5,996,155 41,331,351 424,614Nonoperating revenues (expenses): Interest income, net of interest capitalized 1,574,056 558,712 913,536 3,046,304 159,097 Interest expense and fiscal charges (14,199,647) (2,359,248) (4,997,032) (21,555,927) - Loss on sale or disposal of capital assets, net (21,484) (534) (2,113,172) (2,135,190) - Total nonoperating revenues (expenses) (12,647,075) (1,801,070) (6,196,668) (20,644,813) 159,097 Net income (loss) before contributions and transfers 13,853,180 7,033,871 (200,513) 20,686,538 583,711Capital contribution 175,778 43,240 - 219,018 - Transfers out (8,500,000) (1,632,612) (79,417) (10,212,029) (35,000) Changes in net assets 5,528,958 5,444,499 (279,930) 10,693,527 548,711Total net assets - beginning 176,953,962 72,251,988 56,196,414 305,402,364 10,877,420Total net assets - ending 182,482,920$ 77,696,487$ 55,916,484$ 316,095,891$ 11,426,131$


Statement of Revenues, Expenses, and Changes in Fund Net AssetsProprietary Funds

For Year Ended June 30, 2008

24



GovernmentalActivities--

Waste- Parking InternalWater Water Facilities Total Service Funds

CASH FLOWS FROM OPERATING ACTIVITIES:Receipts from customers 76,414,860$ 23,340,373$ 20,213,559$ 119,968,792$ 15,878,152$ Payments to suppliers (12,277,358) (3,702,264) (1,096,391) (17,076,013) (10,152,242) Payments to employees (14,612,069) (4,920,109) (7,977,273) (27,509,451) (3,870,043) Other receipts (payments) (12,238,464) (4,889,340) (1,068,358) (18,196,162) (1,163,242) Net cash and short term investments provided by operating activities 37,286,969 9,828,660 10,071,537 57,187,166 692,625

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:Internal activity (11,745,048) (3,507,605) 5,419,689 (9,832,964) 15,795 Operating subsidies and transfers to other funds (8,500,000) (1,632,612) (79,417) (10,212,029) (35,000) Net cash provided by (used in) noncapital financing activities (20,245,048) (5,140,217) 5,340,272 (20,044,993) (19,205)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:Proceeds from capital debt 59,226,015 43,515,845 3,857,692 106,599,552 - Capital contributions 175,778 43,240 - 219,018 - Purchases of capital assets (15,732,538) (21,242,014) (13,428,092) (50,402,644) (289,222) Purchases of other assets held for sale (17,493) - - (17,493) - Principal paid on capital debt (11,577,746) (5,031,831) (3,554,453) (20,164,030) (2,510) Interest paid on capital debt (13,840,582) (2,460,021) (5,529,985) (21,830,588) -

Net cash provided by (used in) capital and related financing activities 18,233,434 14,825,219 (18,654,838) 14,403,815 (291,732)

CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales and maturities of investments 28,810,994 17,435,798 5,401,977 51,648,769 - Purchase of investments (63,279,728) (43,841,836) (5,035,160) (112,156,724) - Interest and dividends 1,541,345 558,712 919,629 3,019,686 159,097 Net cash provided by (used in) investing activities (32,927,389) (25,847,326) 1,286,446 (57,488,269) 159,097

Net increase (decrease) in Cash and short term investments 2,347,966 (6,333,664) (1,956,583) (5,942,281) 540,785

Cash and short term investments - beginning of the year 33,350,574 9,326,932 18,554,990 61,232,496 3,854,211

Cash and short term investments - end of the year 35,698,540$ 2,993,268$ 16,598,407$ 55,290,215$ 4,394,996$

Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities:Operating income 26,500,255$ 8,834,941$ 5,996,155$ 41,331,351$ 424,614$ Adjustments to reconcile operating income to net cash and short term investments provided by operating activities: Depreciation expense 11,096,511 3,702,273 3,873,999 18,672,783 302,506 Provision for bad debt 710,185 577,686 - 1,287,871 15,672 Loss on disposal of assets - - - - 103,900 Change in assets and liabilities: Receivables, net (856,108) (1,898,275) (211,566) (2,965,949) (273,583) Other receivables 115,000 149,222 - 264,222 - Inventories (215,037) 496 (64,814) (279,355) 2,306 Other assets - - (59,415) (59,415) - Vouchers payable (1,989,603) (1,546,880) (114,764) (3,651,247) 192,211 Accrued payroll (347,315) (87,377) (54,851) (489,543) 21,124 Other liabilities 2,273,081 96,574 706,793 3,076,448 (96,125) Net cash and short term investments provided by operating activities 37,286,969$ 9,828,660$ 10,071,537$ 57,187,166$ 692,625$

Reconciliation of Cash and short term investments to the statement of net assets: Cash and short term investments 27,469,306$ 2,836,730$ 14,546,896$ 44,852,932$ 4,394,996$ Restricted cash with fiscal agent 8,229,234 156,538 2,051,511 10,437,283 - Total cash and short term investments per statement of net assets 35,698,540$ 2,993,268$ 16,598,407$ 55,290,215$ 4,394,996

Noncash investing, capital, and financing activities:Loss on sale or disposal of capital assets (3,991)$ (534)$ (2,113,172)$ (2,117,697)$ (103,900)$

Acquisition of capital assets through change in in contract retainage 186,023$ (248,815)$ 172,552$ 109,760$ -$

Acquisition of capital assets through vouchers payable (440,122)$ (1,175,176)$ (1,232,988)$ (2,848,286)$ -$ Capitalized interest, less interest earned on

certain long-term construction contracts 564,336$ 684,368$ -$ 1,248,704$ -$ Transfer of land and related debt from Capital projects fund -$ -$ 3,500,000$ 3,500,000$ -$


Statement of Cash Flows - Proprietary FundsYear Ended June 30, 2008


CITY OF NORFOLK, VIRGINIA Exhibit C-1

PensionTrust

Employees' Retirement Agency

System FundsASSETSCash and short term investments 47,950,535$ 9,257,848$ Investments, fair value

Fixed income 340,821,012 - Balanced commingled funds 95,672,865 - Common stocks 79,512,677 - Domestic equity funds 172,259,882 - International equity funds 160,883,020 -

Receivables:Accounts, net of allowance

for uncollectible accounts - 1,045 Retirement contribution 25,667,556 - Accrued investment income 2,496,290 - Due from broker for securities sold 28,144,336 Other - 523,305 Total assets 953,408,173 9,782,198

LIABILITIESVouchers payable 1,024,195 26,215 Due to brokers for securities purchased 72,186,529 - Other liabilities - 9,755,983

Total liabilities 73,210,724 9,782,198

NET ASSETSReserved for:

Assets held in trust forpension benefits 880,197,449 -

Total net assets 880,197,449$ $ -

Statement of Fiduciary Net AssetsJune 30, 2008

26


CITY OF NORFOLK, VIRGINIA Exhibit C-2

2008

Investment income (loss):Net appreciation (depreciation) in fair value of investments (76,409,412)$ Interest 22,195,793 Dividends 10,013,324 Other (117,841)

(44,318,136) Employer contributions 25,667,556 Less investment expense (4,110,319)

Net investment loss (22,760,899)

Benefits paid to plan members and beneficiaries 55,033,789 Refunds of contributions 26,228 Beneficiary payments 3,230,228 Administrative expenses 600,065

Total 58,890,310

Net decrease (81,651,209)

Net assets held in trust for pension benefits:Beginning of year 961,848,658 End of year 880,197,449$

Statement of Changes in Fiduciary Net AssetsPension Trust Fund - Employees' Retirement System


27


CITY OF NORFOLK, VIRGINIA Exhibit D-1

Norfolk Norfolk Public CommunitySchools Services Board Total

ASSETSCash and short term investments 10,710,798$ 5,516,670$ 16,227,468$ Cash held in escrow with fiscal agent - 4,229,827 4,229,827 Receivables: Accounts, net of allowance for uncollectible accounts 942,278 755,135 1,697,413 Interest - 28,848 28,848 Other - 489,544 489,544 Due from primary government 18,716,372 23,705 18,740,077 Due from other governments 28,597,518 - 28,597,518 Inventories 971,548 - 971,548 Prepaid expenses - 76,917 76,917 Capital assets, net 71,813,300 1,156,017 72,969,317 Total assets 131,751,814 12,276,663 144,028,477 LIABILITIES Vouchers payable 11,166,808 680,185 11,846,993 Contract retainage 86,243 - 86,243 Accrued payroll 25,532,796 436,693 25,969,489 Unearned revenue 274,322 274,322 Due to other agencies 2,342,465 - 2,342,465 Other deposits/liabilities - 45,718 45,718 Other post employment benefits 2,255,000 - 2,255,000 Current vested compensated absences 585,754 882,311 1,468,065 Other current liabilities 199,723 960,617 1,160,340 Long-term vested compensated absences 9,007,465 259,230 9,266,695 Claims and judgments liability long-term 1,471,801 - 1,471,801

Total liabilities 52,922,377 3,264,754 56,187,131 NET ASSETS Invested in capital assets, net of related debt 71,813,300 1,156,017 72,969,317 Restricted for: Capital projects 960,653 - 960,653 Other programs 90,651 66,481 157,132 Unrestricted 5,964,833 7,789,411 13,754,244 Total net assets 78,829,437$ 9,011,909$ 87,841,346$

Statement of Net Assets - Component UnitsJune 30, 2008


CITY OF NORFOLK, VIRGINIA Exhibit D-2

Operating CapitalCharges for Grant Grant Norfolk Public Community

Expenses Services Contributions Contributions Schools Services Board TotalsNorfolk Public Schools: Instructional 279,281,789$ 3,190,484$ 212,930,459$ -$ (63,160,846)$ (63,160,846)$ Administration, attendence and health 13,312,438 - - - (13,312,438) (13,312,438) Pupil transportation 11,136,674 - - - (11,136,674) (11,136,674) Operation and maintenance 36,257,779 - - - (36,257,779) (36,257,779) Information technology 8,949,687 - - - (8,949,687) (8,949,687) School facilities 16,099,522 - - 8,940,943 (7,158,579) (7,158,579) Food services 14,533,093 3,059,718 11,111,928 - (361,447) (361,447) Total Norfolk Public Schools 379,570,982 6,250,202 224,042,387 8,940,943 (140,337,450) (140,337,450)

Community Services Board: Health and public assistance 23,944,721 7,240,138 12,953,441 - (3,751,142)$ (3,751,142)

Total component units 403,515,703$ 13,490,340$ 236,995,828$ 8,940,943$ (144,088,592)

General revenues: Loss from sale of capital assets - (16,189) (16,189) Interest and investment earnings 2,325,495 511,672 2,837,167 Commonwealth of Virginia 32,292,231 - 32,292,231 Local government 101,094,910 3,701,000 104,795,910 Miscellaneous 79,370 11,500 90,870 Total general revenues 135,792,006 4,207,983 139,999,989 Changes in net assets (4,545,444) 456,841 (4,088,603) Net assets--beginning 83,374,881 8,555,068 91,929,949 Net assets--ending 78,829,437$ 9,011,909$ 87,841,346$

Program Revenues Net (Expense) Revenueand Changes in Net Assets

Statement of Activities - Component UnitsFor the Year Ended June 30, 2008

29


NOTES TO THE BASIC

FINANCIAL STATEMENTS

CITY OF NORFOLK, VIRGINIA NOTES TO THE BASIC FINANCIAL STATEMENTS


30

Page I Summary of Significant Accounting Policies 33

A Financial Reporting Entity Information……….……………………………………………….. 33 B Government-wide and Fund Financial Statements……………………………………… …. 34 C Measurement Focus, Basis of Accounting and Financial Statement Presentation........... 36 D Budgets and Budgetary Accounting ………………………………………………...………... 37 E Deposits and Investments………..…………………………………………………………….. 38 F Restricted Assets……………………………………………………...………………………… 39 G Notes Receivable.......................................…………………………………………………… 39 H Interfund Transactions………………………………………………………………………….. 39 I Inventories……………………………………………………………………………………….. 40 J Capital Assets……………………….………………………..…………………………………. 40 K Compensated Absences……………………………………………………………………….. 41 L Net Assets/Fund Balances……………………………………………………………………... 42 M Estimates……..………………….…………………….….…………....................................... 42

II Deposits and Investments 42

III Property Taxes 47

IV Accounts Receivable 48

A Unbilled Accounts Receivable ………………………………………………………………… 48 B Allowances for Uncollectible Accounts Receivable …………………………………………. 48

V Notes Receivable 49

VI Due From Other Governments 49

VII Changes in Capital Assets 50

VIII Long-Term Obligations 52

A General Obligation and Revenue Bonds ……………………………................................... 52 B General Obligation Bonds……………………...………………………………………………. 54 C Revenue Bonds…………………………………………………………………………………..

55



31

VIII Long-Term Obligations (continued)

D E F G H I J K

Other Notes and Loans……………………………………………….. ………………………. Advance Refundings……………………………………………………………………………. Lease Obligations….……………………………………………………………… …………… Landfill Liability…………………………………………………………………………………... Compensated Absences……………………………………………………………………….. Debt Limit………………………………………………………………………………………… Bonds Authorized and Unissued………………………………………………………………. Changes in Long-Term Obligations…………………………………....................................

56 56 57 58 59 59 60 60

IX Other Liabilities 62

X Pension Plans 63

A Employees’ Retirement System of the City of Norfolk (System) …………………………... 63 B School Board – Retirement Plans ….…….………………………….................................... 64 C State Employees – Virginia Retirement System (VRS) …………….................................. 66

XI Deferred Compensation Plan 67

XII Other Post-employment Benefits (OPEB) 67

XIII Interfund Receivable and Payable Balances 71

XIV Interfund Transfers 72

XV Recovered Costs 73

XVI Other Liabilities 74

XVII Supplemental Appropriations 74

XVIII Deferred Revenue 75

A Deferred grant funding ………………………...……………………………………………….. 75 B Deferred property tax revenue…...…………………………..………………………………... 75 C Other Receivable …………………..…………………………………………………………… 75



32

XIX Commitments and Contingencies 76

A Capital Projects …………………………………………………………………………………. 76 B Contingent Liabilities ………..………………………………………………………………….. 76 C Litigation…. ………..…………………………………………………………………………….. 76

XX Surety Bonds and Insurance 77

XXI Self and Purchased Insurance Programs 77

XXII Jointly Governed Organizations 77

A Hampton Roads Regional Jail Authority (HRRJA) ………………………………………….. 78 B Hampton Roads Planning District Commission (the Commission) ……………………….. 78 C Tidewater Transportation District Commission (TTDC) …………………………………….. 79

XXIII Joint Venture 79

Southeastern Public Service Authority (SPSA) 79

XXIV Related Organizations 80

A B

Norfolk Redevelopment and Housing Authority (NRHA)……………………………………. Norfolk Airport Authority ……………………………………………………………….……….

80 80

C The Economic Development Authority of the City of Norfolk (EDA)………………..……… 81 D The Chrysler Museum, Inc. (The Museum)………………………....................................... 81 E The Hospital Authority of Norfolk (HAN)…………………………........................................ 81

XXV Subsequent Event 82

XXVI Accounting Pronouncements Issued But Not Yet Implemented 82



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I. Summary of Significant Accounting Policies

A. Financial Reporting Entity Information The City of Norfolk (the “City”) was incorporated February 13, 1845, and operates under a charter adopted February 7, 1918, which mandates a Council-Manager form of government. The City and its component units provide the following municipal services to approximately 242,000 residents, as authorized by its charter or code: public safety, highway and street maintenance, water production and quality, solid waste management, wastewater treatment, cultural and parking facilities, environmental storm water management, public health, social programs, parks and recreation, public education, public improvements, planning and zoning code enforcement, public libraries and general administration. Blended Component Unit: The Employees' Retirement System of the City of Norfolk (ERS) has a nine-member Board of Trustees. Seven members are appointed by the City Council. The City Manager and Director of Finance are ex-officio members. The ERS is the administrator of a single-employer noncontributory defined benefit plan that covers substantially all employees of the City of Norfolk, excluding School Board employees and certain employees of the Constitutional Officers covered by the Virginia Supplemental Retirement System, as authorized by Section 143(a) of the City Charter. The ERS was established and placed under the management of the Board of Trustees for the purpose of providing retirement and death benefits as authorized by the provisions of Chapter 37 of the Norfolk City Code. The City makes its contributions, in conjunction with investment earnings of the ERS, to provide the funding for pension benefits and administrative costs.

Discretely Presented Component Units: Although legally separate entities are in substance part of the City’s operations, each discretely presented component unit is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the government. The component units discussed below are included in the City's financial reporting entity due to their financial relationships with the City. The School Board for the City of Norfolk (School Board) which has seven members is the operating body that establishes the educational and financial programs and policies for the City’s public school system. School Board members are appointed by the City Council. The City levies taxes for its operation, issues bonds or enters into capital leases for its capital requirements and approves its annual operating budget. The School Board for the City of Norfolk is comprised of the School Operating fund, Capital Projects fund, Child Nutrition fund, Grants Fund and agency funds. The Norfolk Community Services Board (CSB) was created in 1969 by a resolution of the City Council. It’s purpose is to provide mental health, mental retardation, and substance abuse services to residents of the City of Norfolk. The CSB is composed of 15 members appointed by City Council. City Council approves the CSB's annual operating budget.



34

Complete financial statements of the individual component units can be obtained from their respective administrative offices:

The City of Norfolk Retirement Board 810 Union Street, City Hall Building Room 309 Norfolk, Virginia 23510 The School Board for the City of Norfolk 800 East City Hall Avenue P.O. Box 1357 Norfolk, Virginia 23501-1357 The Norfolk Community Services Board Board Administration 248 West Bute Street Norfolk, Virginia 23510-1404

B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government and its component units. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.



35

The City reports the following major governmental funds: The General Fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Debt Service Fund accounts for the resources accumulated and payments made for principal and interest on long-term debt obligations of governmental funds and proprietary funds. The Capital Projects Fund accounts for the acquisition and construction of major capital facilities of the City, some of which are also used by the School Board. The City reports the following major proprietary funds:

• The Water Fund accounts for the activities of the City’s water system, treatment plant and distribution systems.

• The Wastewater Fund accounts for the activities of the City’s sewage

pumping stations and collection systems.

• The Parking Facilities Fund accounts for the activities of the City’s owned parking facilities.

Additionally, the City reports the following other fund types:

• Internal Service Funds account for the City’s storehouse operations and fleet management services provided to other departments or agencies of the City on a cost reimbursement basis.

• The Pension Trust Fund accounts for the activities of the Employee’s

Retirement System, which accumulates resources for pension benefit payments to qualified employees.

• The Permanent Fund is used to report resources that are legally restricted to

the extent that only the interest may be used to support the City’s cemetery operations.

• The Agency Funds are used to account for the assets held by a

governmental unit as an agent for individuals, private organizations, other governmental units and or other funds. Agency funds do not involve the measurement of results of operations as they are custodial in nature (assets = liabilities).



36

C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Fiduciary fund financial statements do not have a measurement focus. The City’s discretely presented component units are also included in the government-wide financial statements utilizing the same basis of accounting.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenue and related assets are recorded when they become susceptible to accrual, that is, when they become both measurable and available. Revenues are considered to be available when they are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City generally considers revenues, except for grant revenues, to be available if they are collected within 45 days of the end of the fiscal year. Real and personal property taxes are recorded as receivables when levied and billed, which corresponds with the fiscal year for which the taxes have been levied, net of allowances for uncollectible accounts. In compliance with Section 2.9, Uniform Financial Reporting Manual for Virginia Counties and Municipalities, property taxes due and collected within 45 days after June 30 are recognized as revenue; those not collected within 45 days after year–end are reported as deferred revenue. Items such as license fees, permit fees and fines are recorded as revenue when received. Intergovernmental revenue, consisting primarily of federal, state and other grants for the purpose of funding specific expenditures, is recognized at the time the specific expenditures expected to be financed by this revenue are made. Revenue from general purpose grants is recognized during the entitlement period. Major sources of governmental funds susceptible to accrual include the following:

• Real property taxes • Revenue from the Commonwealth • Personal property taxes o Shared expenses • Sales and use taxes o Categorical aid • Consumer utility taxes • Revenue from the federal government • Environmental storm water billings

Expenditures, other than interest on general long-term obligations, are recorded as related fund liabilities when incurred. Interest on general long-term obligations is recognized when due. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and



37

proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board (“GASB”). Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City’s proprietary funds and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include: 1) charges for services, 2) operating grants and contributions and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Therefore, all taxes are general revenue. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues and expenses of the City’s Water, Wastewater and Parking Facilities enterprise funds, and of the City’s internal service funds are charges to customers for sales and services and administrative expenses, and depreciation on capital assets. Revenues and expenses not meeting this definition, including interest income or expense are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as they are needed.

D. Budgets and Budgetary Accounting An operating budget is adopted each fiscal year for the General fund, Water Utility fund, Wastewater Utility fund, Parking Facilities fund, Storm Water special revenue fund, Nauticus special revenue fund, Maritime Facility special revenue fund, Public Amenities special revenue fund, Cemeteries special revenue fund, emergency Operations center/E911 special revenue fund, Golf special revenue fund, Towing special revenue fund and internal service funds. Project length budgets are appropriated for the Capital Projects and Grants funds. All funds are under formal budgetary control. No less than 60 days before the end of the fiscal year, the City Manager must submit to the City Council, a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. A public hearing is conducted. Then, on or before July 1,



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the budget is legally enacted through adoption of an ordinance. The property taxes included in the budget become a lien on real properties on July 1. The ordinance for the annual operating budget appropriates funds by department. Additional budgetary controls are exercised administratively, both on an appropriation unit basis over parts, all, or any combination of object categories (budgetary account groups) such as: (1) personal services; (2) materials, supplies and repairs; (3) general operations and fixed charges; (4) equipment; (5) public assistance; and (6) all purpose appropriations, as well as on a line item basis over individual objects (budgetary accounts). The City Manager is authorized to transfer funds between departments and funds without further approvals by City Council. The School Board manages and controls all funds made available for public school purposes by the City Council. In accordance with the Code of Virginia, the School Board has exclusive authority to expend funds within the total amounts appropriated by City Council. Consistent with the enabling ordinance, the Schedules of Revenues and Expenditures – Budget and Actual of the General Fund presented in Exhibit E include the revenues and expenditures - budget and actual of the School Board. A reconciliation of revenues and expenditures reported in accordance with accounting principles generally accepted in the United States (GAAP) and those presented in accordance with non-GAAP budgetary basis, for the general fund, can be found following Exhibit E-2. The budgets for the enterprise funds and internal service funds are prepared on a basis generally consistent with accounting principles generally accepted in the United States of America. With the exception of capital projects and grants fund appropriations, unencumbered annual appropriations lapse at the end of the fiscal year. City Council may authorize supplemental appropriations to the operating budgets during the fiscal year. Budgeted amounts as reported in the financial statements represent the original appropriations, and all supplemental adjustments or appropriations. City Council adopts a capital improvement budget on a project basis. As in the case of the General fund budget, these budgets are submitted by the City Manager, public hearings are held and the budgets are legally enacted through adoption of an ordinance. Appropriations for these budgets continue until the purpose of the appropriation has been fulfilled. Amendments to these budgets are affected by City Council.

E. Deposits and Investments The City’s cash and short-term investments include cash on hand, demand deposits, and short term investments with original maturities of one year or less from the date of acquisition.



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Investment statutes authorize the City and the School Board to invest in obligations of the United States or agencies thereof, obligations of the Commonwealth of Virginia or political subdivisions thereof, obligations of the International Bank for Reconstruction and Development (World Bank) and Asian Development Bank, commercial paper rated A-1 by Standard and Poor's Corporation or P-1 by Moody's Commercial Paper Record, bankers' acceptances, repurchase agreements and the State Treasurer's Local Government Investment Pool (LGIP). The fair value of the LGIP is the same as the value of the pool shares. The LGIP is not registered with the Securities and Exchange Commission (SEC) as an investment company, but maintains a policy to operate in a manner consistent with the SEC’s Rule 2a7 of the Investment Company Act of 1940. The external investment pool is administered by the Treasury Board of Virginia. The Pension Trust fund is authorized to invest in common stocks and other investments as directed by State statute. Investments of the City as well as its component units are stated at fair value. Short-term investments are recorded at cost, which approximates fair value. Securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the fiscal year. Purchases and sales of securities traded but not yet settled at year-end are recorded as due to broker for securities purchased and due from broker for securities sold, respectively. The City uses the pooled cash investment method, as a result individual fund overdrafts are reclassified as due to/due from other funds or internal balances for financial statement purposes. Income from the investment of pooled cash is allocated to the various funds based on the percentage of cash and temporary investments of each fund to the total pooled cash and temporary investments. For purposes of the statement of cash flows, all highly liquid debt instruments and certificates of deposit are grouped into cash and short-term investments. The cash and investment pool discussed above is considered cash, since it has the same characteristics as a demand deposit account.

F. Restricted Assets Restricted assets are those whose use is subject to externally imposed constraints such as creditors through debt covenants, grantors or laws or regulations of other governments.

G. Notes Receivable Notes receivable reported in the governmental funds represent assets that are offset by deferred revenue in the fund financial statements since funds do not meet the availability criteria. Payments on these balances will be recognized as revenue as they are received.



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H. Interfund Transactions During the normal course of operations, the City has numerous transactions between funds, including expenditures and transfers of resources to provide services, construct assets and service debt. The accompanying fund financial statements generally reflect such transactions as transfers. Internal service funds record charges for services to all City departments and funds as operating revenue. All City funds record these payments to the internal service funds as operating expenditures or expenses. Since internal service funds generally support governmental activities rather than business-type activities, they are consolidated with the governmental funds in the government-wide financial statements. A discrete presentation of the City’s internal service funds can be found in the “Other Supplementary Information” section of this document. The General fund provides administrative services to enterprise funds and internal service funds. Charges for these services are treated as operating expenses by the enterprise and internal service funds and as revenue by the General fund in the fund financial statements.

I. Inventories Inventories are stated at cost, using either the first-in, first-out, or the moving average method. Inventories in the governmental funds consist of expendable supplies held for consumption for which the cost is recorded as an expenditure when acquired, i.e., the "purchase method." Reported inventories in the governmental funds are offset by a fund balance reserve, indicating they are not currently available expendable resources. Proprietary funds expense inventories when consumed.

J. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported at historical cost less accumulated depreciation in the applicable governmental or business-type activities column in the government-wide financial statements and in proprietary funds. Capital assets are defined by the City’s capitalization policy as assets with an initial, individual cost of more than $2,000 and an estimated useful life greater than one year. Capital outlays of governmental funds are recorded as expenditures at the time of purchase and are not capitalized in the governmental funds. However, they are capitalized in the government-wide statement of governmental activities. Where historical cost records are not available, assets are recorded at estimated historical cost. Gifts or donated fixed assets are recorded at their estimated fair value on the date received. In the enterprise and internal service funds, interest costs incurred on funds borrowed for construction projects are capitalized net of interest earned on the temporary investment of the unexpended portion of those funds. When an asset is retired or otherwise disposed of, the related cost and accumulated depreciation are



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eliminated and any resulting gain or loss is reflected as non-operating revenue or expense. The City evaluates prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A capital asset is generally considered impaired if both (a) the decline in service utility of the capital asset is large in magnitude and (b) the event or change in circumstance is outside the normal life cycle of the capital asset. Impaired capital assets that will no longer be used by the City are reported at the lower of the carrying value or fair value. Impairment losses on capital assets that will continue to be used by the City are measured using the method that best reflects the diminished service utility of the capital asset. Any insurance recoveries received as a result of impairment events or changes in circumstances that result in the impairment of a capital asset are netted against the impairment loss. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Capital assets purchased by enterprise and internal service funds are stated at cost, less accumulated depreciation. Capital assets of the primary government, as well as the component units, are depreciated using the straight line method over the following estimated useful lives:

K. Compensated Absences It is the City and School Board’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Vacation leave is fully vested when earned by City employees. Sick leave does not vest for City employees; however, upon retirement, City employees receive credit for each day of accumulated sick

Governmental

Funds Enterprise

Funds Internal Service Funds

(In years) Building and improvements 40 10-75 40-50 Improvements other than buildings 15-25 10-99 15 Warehouse equipment and fixtures - - 7-10 Transmission and distribution mains - 50-99 - Service meters and meter installation - 35-50 - Pumping and other water/wastewater

equipment - 10-30 -

Vehicles and garage equipment 4-10 4-10 4-25 Data processing equipment 5-10 5-10 5-10 Furniture, fixtures and equipment 3-25 3-25 3-20



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leave toward their pension benefit. There is no liability for unpaid accrued sick leave service since the City does not pay when the employee separates from service. The entire unpaid liability for vacation leave is recorded in the respective funds in the government-wide financial statements. Upon retirement, School Board employees are paid $20 for each day of accumulated sick leave at retirement. Accumulated vacation leave cannot exceed 50 days for School Board employees. School Board employees are paid for unused vacation leave, at their normal rate of pay, upon termination of employment. Most School Board food service employees have ten-month employment contracts and are not entitled to vacation.

L. Net Assets/Fund Balances Net assets in government-wide and proprietary fund financial statements are classified as invested in capital assets, net of related debt; restricted; and unrestricted. Restricted net assets represent constraints on resources that are either externally imposed by creditors, grantors, contributors, laws and regulations of other governments or imposed by law through state statutes. Reservations of fund balances are used to indicate that portion that is not appropriable for expenditures or to identify a portion of a fund's equity as legally segregated for a specific future use. Designations of unreserved fund balances in governmental funds are established to indicate City management's tentative plans for use of financial resources in a future period.

M. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses/expenditures during the reporting period. Actual results could differ from those estimates.

II. Deposits and Investments

Custodial Credit Risk - Deposits The City maintains a cash and investments pool for all funds except the Pension Trust and permanent funds. Each fund’s portion of the pool is disclosed in the statement of net assets and balance sheet as cash and short term investments. The cash and investments of the Pension Trust and permanent funds are held separately from the pooled City funds.



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In accordance with its investment policy, all deposits of the City and its component units are held in City Council designated official depositories and are collateralized in accordance with the Virginia Security for Public Deposits Act (“the Act”), Section 2.2-4400 et. seq. of the Code of Virginia or covered by federal depository insurance. Under the Act, banks holding public deposits in excess of the amounts insured by the FDIC must pledge collateral in the amount of 50% of excess deposits to a collateral pool in the name of the State Treasury Board. If any member financial institution whose public deposits are collateralized in accordance with the requirements of the Act fails, the entire market value of the collateral pool becomes available to satisfy the claims of governmental entities. If the value of the pool’s collateral were inadequate to cover a loss, additional amounts would be assessed on a pro rata basis to members of the pool. The State Treasury Board is responsible for monitoring compliance with the collateralization and reporting requirements of the Act and for notifying local governments of compliance by banks.

Custodial Credit Risk - Investments For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. The City’s equity and fixed income investments (except for bank deposits) are not insured and are registered in the name of the City and held by State Street Bank as custodian. The remaining City investments are held by the City or in the City’s name by the City’s custodial banks. The City and its component units have no formal policy regarding custodial credit risk for investments.

Interest Rate Risk The City’s Pension Trust fund uses a “Duration” policy to manage its interest rate risk. The duration policy is a measure of a debt investment’s exposure to fair value changes arising from changing interest rates. It uses the present value of cash flows, weighted for those cash flows as a percentage of the investment’s full price. Other than for the assets of the City’s Pension fund, neither the City nor discretely presented component units have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.



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Segmented Time Distribution (as of June 30, 2008) Primary Government

Investment Type Fair Value Less than 1 year 1-5 years 6-10 years 10 years +

Corporate Debt 177,472,608$ 21,774,143$ 30,085,515$ 8,494,291$ 117,118,659$ Floaters 289,884 289,884 - - - Mortgages 163,058,520 2,557,504 7,447,575 3,388,336 149,665,105 Certificates of Deposit 18,334,000 - - - - U.S. Agency 4,323,845 - 4,323,845 - - Domestic Equity Funds 172,259,882 N/A N/A N/A N/ABalanced Income Funds 95,672,865 N/A N/A N/A N/ACommon Stock 79,512,677 N/A N/A N/A N/AInternational Equity Funds 160,883,020 N/A N/A N/A N/AMoney Market Investments included

in Cash and short-term investments 275,115,240 N/A N/A N/A N/A Total 1,146,922,541$ 24,621,531$ 41,856,935$ 11,882,627$ 266,783,764$

Investment Maturities (in years)

A reconciliation of the carrying value of deposit and investments as reported above to amounts reported in the Statement of Net Assets (Primary Government) and Statement of Fiduciary Net Assets for the City is as follows:

Per Exhibit 1 (Primary Government): Cash and short term investments 138,700,148$ Restricted cash held with fiscal agents 10,437,283 Investments 131,209,629 Restricted cash and investments 76,770,113 Total 357,117,173$

Per Exhibit C-1 (Fiduciary): Cash and short term investments 57,208,383 Investments 849,149,456 Total 906,357,839$

Total Primary Government and Fiduciary 1,263,475,012$

Less: Actual cash 116,552,471

Deposits and investments reported above 1,146,922,541$



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Community Services Board

Investment Maturities (in years)Investment Type Fair Value Less than 1 year 1-5 years 6-10 years 10 years +Certificates of deposit 1,098,615$ 758,949$ 196,361$ 48,571$ 94,734$ Auction rate securities 1,028,580 1,028,580 - - - Government-sponsored enterprise securities 2,043,445 - 1,868,898 49,852 124,695 Other 59,187 59,187 - - - Total 4,229,827$ 1,846,716$ 2,065,259$ 98,423$ 219,429$

School Board

At June 30, 2008, the School Board has investments of $3,936,115 in an AAA rated money market mutual fund and $4,180,245 invested in an unrated repurchase agreement.

Credit Risk Related to Issuer Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The City’s Pension Trust Fund’s formal policy governing credit risk is that securities rated below investment grade by two of the three primary rating agencies, Moody’s, Fitch Ratings, and Standard and Poor’s (S&P), are not permitted. The City’s Pension Trust Fund invests in certain derivatives including real estate mortgage investment conduits and collateralized mortgage obligations. Those securities are included in reported investments in the Retirement System financial statements. Investments in derivatives with a cost of $71,776,976 and a market value of $66,934,640 were held at June 30, 2008. The City’s rated debt investments as of June 30, 2008 were rated by S&P and/or an equivalent national rating organization and the ratings are presented below using the S&P credit quality rating scale.



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The City held $267,932,747 and $160,883,020 in domestic and international equity funds, respectively, and an additional $79,512,677 in common stock which are unrated securities. The CSB’s investments in government-sponsored enterprise securities were rated AAA by S&P. Its mutual funds, auction rate securities and other investments were unrated.

Concentration of Credit Risk Concentration risk is the risk of loss attributed to the magnitude of an entity’s investment in a single issuer. Mutual funds are excluded from this disclosure requirement. For the City’s Pension Trust funds, no more than 20% of each account’s fixed income portfolio, including cash equivalents, shall be invested in bonds rated Baa (1,2,& 3) or BBB (+ or -). Upon written request from an investment manager, the Retirement Board of Trustees will consider allowing more than 20% in these ratings and the purchase of bonds rated below Baa3 or BBB-. More than 5% of the Retirement System’s investments are in the FNMA investment pools, SSGA, S&P 500 Flagship Fund and Wellington Opportunistic Fund. These investments represent 14.5%, 19.2% and 5.7%, respectively, of the Retirement System’s total investments. The CSB has more than 5 percent of their investments in Cohen & Strees Advantage (5.79%), Easton Vance Senior Income (5.79%), ING Prime Rate Trust (5.79%),

Fair Quality Ratings (S&P) Corporate Debt Floaters Mortgages

Certificates of Deposit U. S. Agency

Money Market Mutual Funds

AAA 45,319,185$ -$ 163,058,520$ -$ 4,323,845$ 28,026,596$ AAAm - - - - - 40,147,229 AA+ 15,438,139 - - - - 4,997,075 AA 15,915,055 - - - - 384,390 AA- 32,009,684 - - - - 4,036,099 A 24,319,718 - - - - -

A+ 13,709,526 - - - - - A- 5,911,086 289,884 - - - -

A-1+ - - - - - 156,639,071 A-1 - - - - - - BA 1,693,436 - - - - -

BBB 4,345,952 - - - - - BBB+ 8,592,619 - - - - - BBB- 5,147,176 - - - - - BB 100,500 - - - - - B 1,696,230 - - - - -

Not Rated 3,180,481 - - 18,334,000 - 40,884,780 Total 177,472,608$ 289,884$ 163,058,520$ 18,334,000$ 4,323,845$ 275,115,240$

The Primary Government's Rated Debt Investment



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Pioneer High Income Trust (5.79%), FLHB Call Bond 10/16/09 (7.13%), FHLB Call Bond 4/29/10 (7.67%) and FHLMC Call Bond (12.35%). These investments represent 50.3% of the CSB’s total investments. Other than for the assets of the City’s Pension fund, neither the City nor its component units have a formal investment policy regarding the amount it may invest in any one issuer.

Foreign Currency Risk

Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or a deposit. The City’s Pension Trust Fund’s exposure to foreign currency risk is presented as follows:

Currency Short-Term Fixed-Income Equity TotalAustrialian Dollar 1,224$ (17,204)$ -$ (15,980)$ Brazilian Real - (79,750) - (79,750) Canadian Dollar 2,281 - - 2,281 Euro 92,296 - - 92,296 Pound Sterling 2,951,530 75,787 26,865,677 29,892,994 Japanese Yen 28,503 - - 28,503

3,075,834$ (21,167)$ 26,865,677$ 29,920,344$

Neither the City nor its component units have a formal policy to limit foreign currency risk. Risk of loss arises from changes in currency exchange rates. The City’s component units did not have any exposure to foreign currency risk at year end.

III. Property Taxes

Local real property assessments are made under the direction of a City Assessor appointed by the City Council. The City has the power to levy taxes on property located within its boundaries for payment of its obligations without limitation as to rate or amount. Rates are established by the City Council. The rates in effect for the year ended June 30, 2008, on each $100 of assessed value, were $1.11 for real property, an additional $.18 for the Downtown Service District, $4.25 for personal property, $1.50 for recreational vehicles, $4.25 for machinery and tools, $1.11 for mobile homes, $2.40 for airplanes, $.50 for pleasure boats and $1.50 for business boats. Disabled veterans pay a discount rate of $3.00 for personal property.



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The property tax calendar is as follows:

In the event any installment of taxes on any of the above properties is not paid on or before the due date, penalties and interest are assessed in accordance with the City Code.

IV. Accounts Receivable

A. Unbilled Accounts Receivable

Following is a summary by fund of unbilled accounts receivable recognized at June 30, 2008:

Water utility fund 4,561,975$ Wastewater utility fund 1,235,700 Parking facilities fund 334,178

6,131,853$

The associated revenue is included in charges for services.

B. Allowances for Uncollectible Accounts Receivable

Allowances for uncollectible accounts receivable are generally established using historical collection data, consideration of economic conditions, specific account analysis and subsequent cash receipts. The allowances at June 30, 2008 are as follows:

Real Property

Other than Real Property

Lien date July 1 January 1

Levy date for existing property July 1 January 1

Levy date for real property improvement, new construction or newly acquired property

October 1, January 1

and April 1

Date of acquisition

Due dates September 30, December 5, March 31

and June 5

June 5 or 30 days after acquisition

Collection dates On or before due date



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Primary Government: General Fund: Taxes 15,150,888$ Accounts 9,892,304 25,043,192

Storm Water special revenue fund 334,400 Water Utility fund 2,846,661 Wastewater Utility fund 1,028,892 Total - Primary Government 29,253,145$

Component Units:Norfolk Public Schools 340,958$ Community Services Board 35,598 Total - Component Units 376,556$

V. Notes Receivable

Notes receivable, at June 30, 2008 are as follows:

Primary Government: General Fund

WHRO (Hampton Roads Educational Telecommunications Association, Inc.) $47,276

VI. Due From Other Governments

Amounts due from other governments, at June 30, 2008 are as follows:

TotalGeneral Primary School

Fund Government BoardCommonwealth of Virginia: Shared expenses 5,000,317$ 5,000,317$ - Categorical aid 138,131 138,131 - Noncategorical aid 17,021,099 17,021,099 - Special revenue grants - 5,513,388 19,021,808$

Total - Commonwealth 22,159,547 27,672,935 19,021,808 Federal Government: Special revenue grants - 3,554,394 9,575,710

Total - Federal - 3,554,394 9,575,710 Total - Due from other governments 22,159,547$ 31,227,329$ 28,597,518$

Component Unit



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VII. Changes in Capital Assets

A summary of changes in capital assets, at June 30, 2008 follows: Primary Government

Beginning Ending Balance Additions Retirements Balance

Governmental activities:Non-depreciable capital assets: Land 37,896,651$ 6,267,500$ (3,812,887)$ 40,351,264$ Construction in progress 99,768,040 47,713,239 (32,719,382) 114,761,897 Total non-depreciable assets 137,664,691 53,980,739 (36,532,269) 155,113,161Depreciable assets: Buildings 528,671,409 48,614,867 (75,537) 577,210,739 Improvements other than buildings 26,598,727 2,391,612 (347,844) 28,642,495 Equipment 112,607,344 18,377,928 (7,199,458) 123,785,814 Infrastructure 1,146,378,163 17,482,229 (9,545,427) 1,154,314,965 Total depreciable assets 1,814,255,643 86,866,636 (17,168,266) 1,883,954,013 Less accumulated depreciation: Buildings (221,156,245) (12,272,467) 76,150 (233,352,562) Improvements other than buildings (11,818,949) (661,307) 256,539 (12,223,717) Equipment (68,166,021) (7,559,682) 6,639,764 (69,085,939) Infrastructure (853,341,983) (52,314,886) 8,474,590 (897,182,279) Total accumulated depreciation (1,154,483,198) (72,808,342) 15,447,043 (1,211,844,497) Depreciable assets, net 659,772,445 14,058,294 (1,721,223) 672,109,516 Total governmental activities capital assets, net 797,437,136$ 68,039,033$ (38,253,492)$ 827,222,677$

Business-Type activities:Non-depreciable capital assets: Land 43,099,824$ 5,187,205$ -$ 48,287,029$ Construction in progress 43,676,857 9,410,523 (49,226) 53,038,154 Total non-depreciable assets 86,776,681 14,597,728 (49,226) 101,325,183 Depreciable assets: Land improvements 7,101,351 - - 7,101,351 Buildings 319,760,428 3,303,619 (5,487,320) 317,576,727 Equipment 496,455,478 32,277,971 (456,743) 528,276,706 Totals depreciable assets 823,317,257 35,581,590 (5,944,063) 852,954,784 Less accumulated depreciation: Land improvements (2,762,477) (134,941) - (2,897,418) Buildings (69,744,896) (6,824,581) 3,380,393 (73,189,084) Equipment (129,385,005) (11,713,261) 445,975 (140,652,291) Total accumulated depreciation (201,892,378) (18,672,783) 3,826,368 (216,738,793) Depreciable assets, net 621,424,879 16,908,807 (2,117,695) 636,215,991Business-Type activities capital assets, net 708,201,560$ 31,506,535$ (2,166,921)$ 737,541,174$

Component units activities:Non-depreciable capital assets: Land 487,500$ -$ -$ 487,500$ Construction in progress 31,521,421 10,196,067 (41,717,488) - Total non-depreciable assets 32,008,921 10,196,067 (41,717,488) 487,500

Depreciable assets: Buildings 5,194,094 - - 5,194,094 Improvements other than buildings 144,603 610,963 - 755,566 Building improvements 41,977,036 41,035,778 (983,440) 82,029,374 Equipment 30,950,718 3,277,203 (1,140,012) 33,087,909 Total depreciable assets 78,266,451 44,923,944 (2,123,452) 121,066,943 Less accumulated depreciation: Buildings (1,804,580) (259,705) (2,064,285) Building improvements (21,037,599) (4,137,408) 863,389 (24,311,618) Equipment and other (20,661,271) (2,414,866) 866,914 (22,209,223) Total accumulated depreciation (43,503,450) (6,811,979) 1,730,303 (48,585,126) Depreciable assets, net 34,763,001 38,111,965 (393,149) 72,481,817Component units activities capital assets, net 66,771,922$ 48,308,032$ (42,110,637)$ 72,969,317$



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Depreciation expense was charged to governmental and business-type activities as follows:

The following is a summary by fund of interest expense/revenue capitalized during the fiscal year ended June 30, 2008:

Interest Interest Net Expense Revenue Capitalized

Water utility fund 1,011,255$ (446,919)$ 564,336$ Wastewater utility fund 684,368 - 684,368

1,695,623$ (446,919)$ 1,248,704$

General government 5,254,789$ Judicial administration 1,150,921 Public safety 2,898,523 Public works, which includes the depreciation of infrastructure assets 54,879,277 Health and sanitation 289,106 Culture and recreation 5,692,967 Community development 2,340,253 In addition, depreciation on capital assets held by the City's internal service funds is charged to the various functions based on their usage of the assets. 302,506 Total depreciation expense 72,808,342$

Business-type activities: Water utility fund 11,096,511$ Wastewater utility fund 3,702,273 Parking fund 3,873,999 Total depreciation expense 18,672,783$

Component unit activities Community Serives Board 183,988$ Schools 6,627,991 Total depreciation expense 6,811,979$



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VIII. Long-Term Obligations

A. General Obligation and Revenue Bonds

The City has traditionally issued general obligation or revenue bonds to provide funds for the construction and acquisition of major capital facilities. General obligation bonds have been issued for both governmental and business-type activities. In 1993 and 1997 the City established Water Revenue and Parking revenue bond programs, respectively. The Wastewater revenue bond program was established in fiscal year 2008. General obligation bonds are direct obligations and pledge the full faith and credit of the City. Revenue bonds are limited liability obligations where revenues derived from the respective acquired or constructed assets are pledged to pay debt service. A summary of general obligation bond and revenue bond transactions for the fiscal year ended June 30, 2008 follows:

General Water Wastewater ParkingObligation Utility Utility Facilities

Bonds Bonds Bonds Bonds Total General obligation bonds outstanding

at July 1, 2007 469,498,450$ * 17,210,346$ 84,483,354$ 5,617,041$ 107,310,741$ Bonds retired (40,341,765) (3,912,746) (6,736,471) (1,352,973) (12,002,190) Bonds transferred (3,423,520) - - 3,423,520 3,423,520 Bonds issued 145,405,000 - 25,360,000 - 25,360,000 Bonds outstanding at June 30, 2008 571,138,165 13,297,600 103,106,883 7,687,588 124,092,071 Unamortized (discount) premium 19,573,547 999,204 (253,912) 525,561 1,270,853 General obligation bonds outstanding

at June 30, 2008, adjusted forunamortized (discount) premium 590,711,712$ 14,296,804$ 102,852,971$ 8,213,149$ 125,362,924$

Revenue bonds outstanding at July 1, 2007 270,075,000$ -$ 94,759,000$ 364,834,000$ Bonds retired (7,665,000) - (2,125,000) (9,790,000) Bonds issued 58,415,000 7,359,833 - 65,774,833 Bonds outstanding at June 30, 2008 320,825,000 7,359,833 92,634,000 420,818,833 Less: Unamortized (discount) premium (2,805,800) - (4,799,604) (7,605,404) Revenue bonds outstanding at June 30, 2008,

adjusted for unamortized (discount) premium 318,019,200$ 7,359,833$ 87,834,396$ 413,213,429$

Enterprise Funds

∗ Includes a Section 108 loan with the Department of Housing and Urban Development (HUD) in the amount of

$13,000,000. Revenues from the Broad Creek Tax Increment Financing (TIF) District are the primary revenue pledge to support the bonds’ debt device. In Virginia, this TIF pledge constitutes a general obligation when determining the City’s legal debt margin.



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General obligation and revenue bonds outstanding at June 30, 2008 are composed of the following individual issues:

Governmental Activities Business-Type Activities

Issue Amount Interest RatePublic Improvement

AllocationWater Utility Allocation

Wastewater Utility Allocation

Parking Facilities Allocation Balance Outstanding

7/11/1989 1,500,000 6.76% 1,500,000$ -$ -$ -$ 1,500,000$ 4/15/1997 4,000,000 5.25 - 5.75% 1,800,000 - - - 1,800,000 6/15/1998 44,330,000 4.25 - 5.00% 3,921,128 - 998,872 - 4,920,000 6/15/1998 49,190,000 4.25 - 5.00% 18,908,196 6,361,491 1,884,076 2,111,238 29,265,000 9/15/1998 2,560,000 4.70 - 5.10% 1,425,000 - - - 1,425,000 7/1/1999 11,700,000 4.50 - 5.00% 1,170,000 - - - 1,170,000 7/1/1999 4,000,000 4.55 - 5.30% 2,400,000 - - - 2,400,000 8/19/1999 7,000,000 none 2,153,842 - - - 2,153,842 7/15/2000 18,025,000 5.00 - 5.25% 2,700,000 - - - 2,700,000 7/15/2000 3,995,000 5.125 - 5.65% 2,595,000 - - - 2,595,000 11/22/2000 3,637,170 none 1,678,694 - - - 1,678,694 12/27/2001 1,062,830 none 490,777 - - - 490,777 2/1/2002 27,000,000 2.00 - 5.00% 9,955,760 - 844,240 - 10,800,000 2/1/2002 7,955,000 3.00 - 5.50% 5,555,000 - - - 5,555,000 2/1/2002 47,200,000 2.00 - 5.00% 16,886,470 2,964,699 4,653,955 374,876 24,880,000 8/14/2002 3,400,000 5.38% 3,400,000 - - - 3,400,000 11/1/2002 34,600,000 3.00 - 5.25% 19,030,000 - - - 19,030,000 11/1/2002 39,890,000 5.00 - 5.25% 15,851,243 874,899 1,804,821 909,037 19,440,000 4/8/2003 9,423,794 3.50% - - 8,125,599 - 8,125,599

11/15/2003 57,110,000 2.00 - 5.00% 44,800,154 - 879,846 - 45,680,000 11/15/2003 12,265,000 3.00 - 4.00% 5,527,500 - 502,500 - 6,030,000 3/1/2004 96,395,000 2.00 - 5.00% 42,669,109 3,096,511 6,464,288 1,040,093 53,270,000 3/3/2004 13,000,000 4.32 - 6.01% 13,000,000 - - - 13,000,000 7/29/2004 1,775,000 5.38% 1,482,894 - - - 1,482,894 9/17/2004 11,100,000 3.10% - - 10,462,196 - 10,462,196 3/16/2005 59,320,000 2.50 - 5.00% 48,785,000 - 1,720,000 - 50,505,000 3/16/2005 35,035,000 2.50 - 5.00% 29,272,644 - 5,652,356 - 34,925,000 3/14/2006 11,500,000 3.00% - - 10,387,393 - 10,387,393 9/28/2006 14,250,000 none - - 13,438,839 - 13,438,840 11/15/2006 99,225,000 4.00 - 5.00% 80,983,156 - 9,579,500 3,252,344 93,815,000 11/15/2006 15,830,000 4.00 - 5.00% 15,426,598 - 348,402 - 15,775,000

3/29/2007 32,365,000

variable with interest rate cap of 5% (expires

4/1/2010) 32,365,000 - - - 32,365,000 2/13/2008 17,160,000 3.00 - 4.625% 17,160,000 - - - 17,160,000 6/30/2008 153,605,000 4.00 - 5.00% 128,245,000 - 25,360,000 - 153,605,000

571,138,165$ 13,297,600$ 103,106,883$ 7,687,588$ 695,230,236$

General Obligation

Bonds Dated


Interest Rate Water Utility Parking FacilitiesWastewater

UtilityBalance

Outstanding11/1/1993 2.80 - 5.375% 48,650,000$ -$ -$ 48,650,000$ 8/15/1995 4.75 - 7.00% 90,480,000 - - 90,480,000.00 11/1/1998 4.00 - 5.125% 70,115,000 - - 70,115,000.00 2/15/1999 4.00 - 5.00% - 14,220,000 - 14,220,000.00 10/15/2001 4.00 - 5.00% 31,160,000 - - 31,160,000.00 10/26/2000 Variable - 185,000 - 185,000.00 10/1/2000 5.50 - 5.50% - 15,155,000 - 15,155,000.00 7/11/2003 4.50% - 761,500 - 761,500.00 7/11/2003 4.50% - 197,500 - 197,500.00 10/28/2004 Variable - 6,410,000 - 6,410,000.00 10/28/2004 2.50 - 5.00% - 29,815,000 - 29,815,000.00 3/23/2005 3.50 - 5.00% 22,005,000 - - 22,005,000.00 6/15/2005 4.00 - 5.00% - 25,890,000 - 25,890,000.00 11/9/2007 0.00% - - 7,359,833 7,359,832.71 4/23/2008 3.00 - 5.00% 58,415,000 - - 58,415,000.00

320,825,000$ 92,634,000$ 7,359,833$ 420,818,833$

Revenue Bonds Dated



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The Parking System’s Series 2004 Variable Rate Demand Bonds are remarketed weekly and have averaged 0.06% over the one-month London Interbank Offered Rate (LIBOR) since inception. The Series 2007 General Obligation Variable Rate Demand Bonds, utilized to finance the construction of the cruise terminal, are remarketed weekly and are generally anticipated to be 0.10% higher than the Securities Industry and Financial Market Association (SIFMA) Index. B. General Obligation Bonds

A summary of the requirements to amortize general obligation bonds are as follows:

Year Ending June 30, Principal Interest Principal Interest

2009 48,142,389$ 24,675,788$ 11,160,807$ 4,457,913$ 2010 45,992,487 23,973,539 10,585,326 4,271,151 2011 45,642,965 22,074,553 10,683,842 3,844,107 2012 42,477,249 19,904,699 9,505,200 3,369,125 2013 37,040,792 17,916,052 7,551,233 2,971,412

2014-2018 149,034,260 66,319,300 28,690,092 11,085,568 2019-2023 116,746,217 34,656,821 25,077,843 6,379,581 2024-2028 66,411,806 12,532,652 20,837,726 2,044,498 2029-2033 10,535,000 3,847,192 - - 2034-2038 9,115,000 1,032,276 - -

Total 571,138,165$ 226,932,871$ 124,092,071$ 38,423,354$

Governmental Activities Business-Type Activites



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The detailed requirements to amortize general obligation bonds for the major proprietary funds are as follows:

Year Ending June 30, Principal Interest Principal Interest Principal Interest

2009 3,757,731$ 625,238$ 6,150,118$ 3,484,732$ 1,252,958$ 347,943$ 2010 2,812,578 437,701 6,585,615 3,548,029 1,187,133 285,421 2011 2,822,993 304,804 6,666,060 3,312,330 1,194,790 226,972 2012 2,058,267 163,900 6,592,873 3,038,319 854,061 166,907 2013 747,197 74,546 6,366,531 2,765,087 437,504 131,779

2014-2018 1,098,833 54,860 26,370,701 10,600,395 1,220,558 430,313 2019-2023 - - 24,221,963 6,144,000 855,880 235,581 2024-2028 - - 20,153,022 1,986,299 684,704 58,200 2029-2033 - - - - - - 2034-2038 - - - - - -

13,297,600$ 1,661,049$ 103,106,883$ 34,879,190$ 7,687,588$ 1,883,116$

Wastewater Utility Fund Parking Facilities Fund Water Utility Fund

C. Revenue Bonds

The water revenue bond covenants require that each year’s water utility fund net revenue not be less than the greater of (i) the sum of 1.1 times senior debt service and 1.0 times subordinated debt service or (ii) 1.0 times the funding requirements for transfers from the revenue fund to the operating fund, the bond fund, the parity debt service fund, the debt service reserve fund, the subordinate debt service fund, the repair and replacement reserve fund and the rate stabilization fund. Pursuant to the terms of the revenue bond indenture, certain resources have been set aside for the repayment of the revenue bonds. These resources are classified as restricted cash and investments on the balance sheet because their use is limited by applicable bond covenants.

The parking revenue bond covenants require that each year’s parking facilities fund net revenue not be less than the greater of (i) the sum of 1.25 times senior debt service and 1.0 times subordinated debt service and (ii) 1.0 times the funding requirements for transfers from the revenue fund to the operating fund, the bond fund, the parity debt service fund, the debt service reserve fund, the MacArthur Center garage reserve fund, the repair and replacement reserve fund, the surety bond interest fund and the subordinate debt service fund. Pursuant to the terms of the revenue bond indenture, certain resources have been set aside for the repayment of the revenue bonds. These resources are classified as restricted investments on the balance sheet because their use is limited by applicable bond covenants. The wastewater revenue bond covenants require that each year’s wastewater utility fund net revenue will equal at least 1.15 times the amount required during the fiscal year to pay the principal of the wastewater revenue bond, the additional payments and all other indebtedness of the borrower payable from revenues, including without limitation, indebtedness under leases which are treated as capital leases under



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generally accepted accounting principles, but excluding any general obligation bonds issued to finance wastewater system property. The detailed requirements to amortize water and parking revenue bonds are as follows:

Water Revenue Parking Revenue Wastewater RevenuePrincipal Interest Principal Interest Principal Interest

8,050,000$ 16,411,343$ 2,230,000$ 4,529,987$ -$ -$ 9,420,000 15,929,680 2,560,000 4,437,658 183,996 - 9,875,000 15,467,723 2,635,000 4,349,049 367,992 -

10,375,000 14,973,521 2,755,000 4,220,647 367,992 - 10,900,000 14,446,373 2,840,000 4,086,138 367,992 - 63,680,000 63,047,766 15,564,000 18,355,157 1,839,958 - 83,090,000 43,640,474 19,740,000 14,388,158 1,839,958 - 71,455,000 20,897,512 24,475,000 8,996,391 1,839,958 - 30,965,000 8,550,791 17,710,000 2,643,468 551,987 - 19,440,000 3,040,597 2,125,000 146,059 - -

3,575,000 84,906 - - - - 320,825,000$ 216,490,685$ 92,634,000$ 66,152,712$ 7,359,833$ -$

D. Other Notes and Loans The City issued a $2,000,000 note for the acquisition of land from The Catholic

Diocese of Richmond on December 18, 2007. The balance of the note will be paid according to the following schedule:

Year Ending June 30, Principal Interest

2009 1,000,000$ - 2010 1,000,000 - Total 2,000,000$ -$

E. Advanced Refundings

Previously, the City of Norfolk defeased certain general obligation and revenue bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the fund’s financial statements.



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At June 30, 2008 the following defeased bonds from advance refunding are still outstanding:

Defeased In Original IssueGeneral

Obligation Bonds

2005 1998 20,630,000$ 2005 1999 4,680,000 2005 2000 6,300,000 2005 2002 4,050,000 2006 1999 1,170,000 2006 2000 2,700,000 2006 2002 4,050,000 2006 2002B 6,920,000

50,500,000$

Defeased In Original IssueParking Revenue

Bonds

2000 1999 420,000$ 2002 2000B 2,705,000

3,125,000$

F. Lease Obligations

Capital Leases: The City leases certain computer, automotive, solid waste automation and other heavy equipment. The remaining debt service requirements, including interest at rates varying from 2.46% to 4.09%, will be retired by funds from the general fund on the aforementioned contracts. Operating Leases: The City leases various facilities for operational and office space from various lessors under operating leases. Total rental expenditures under these leases were $2,608,088 for the year ended June 30, 2008.



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Future year lease obligations are listed below:

Capital Operating Year Ending Lease Lease

June 30, Obligations Obligations

2009 1,845,478$ 2,663,155$ 2010 1,175,523 1,963,392 2011 398,865 1,664,225 2012 - 1,222,686 2013 - 789,227

Total minimum lease payments 3,419,867 8,302,685 Less interest (126,723)

3,293,144 Less current portion (1,758,251)

1,534,893$

G. Landfill Liability

The City closed its Campostella landfill site on June 30, 1992. State and federal laws require the City to perform certain maintenance and monitoring activities at the site for 30 years after closure. The $1,243,692 reported as an obligation for landfill closure and post-closure costs at June 30, 2008 reflects the estimated total cost to perform these activities. Actual costs may be higher due to inflation, changes in technology and/or changes in laws. The Campostella landfill statistically exceeded groundwater protection standards in May 2002. Until a remedy for corrective action is chosen and approved, $1,000,000 is included in the liability above for groundwater corrective action as required by state law.



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H. Compensated Absences

A liability for vested vacation and sick leave benefits is recorded as general long-term obligations. These benefits represent future obligations of the following funds and component units:

Primary Government: Governmental activities: General fund $ 14,678,991 Non-major governmental and internal service funds 1,225,238 Total governmental $ 15 904,229 Enterprise funds: Water utility fund $ 930,200 Wastewater utility fund 330,300 Parking fund 278,836 Total enterprise funds $ 1,539,336 Component Unit - School Board $ 9,593,219 Component Unit - CSB $ 1,141,541

I. Debt Limit

The Commonwealth of Virginia imposes a legal limit of 10 percent of the assessed valuation of taxed real property as a ceiling in the amount of general obligation borrowings, which may be issued by the City without referendum. At June 30, 2008 the City's debt limit is $1,840,185,107 of which $1,142,734,873 is available for creation of additional debt. There are no overlapping tax jurisdictions.



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J. Bonds Authorized and Unissued

A summary of bonds authorized and unissued as of June 30, 2008 are as follows:

K. Changes in Long-Term Obligations

A summary of fiscal year 2008 changes in long-term obligations, net of unamortized discounts and premiums, are as follows:

Project Categories Total

General Obligation Bonds Authorized and Unissued:Capital fund projects:

General capital improvement projects 101,997,850$ Towing and Recovery capital improvement projects 150,000 Storm W ater capital improvement projects 3,550,660

Capital fund projects total 105,698,510

Wastewater Utility fund projects 5,535,748 General Obligation Bonds Authorized and Unissued 111,234,258

Revenue Bonds Authorized and Unissued:Water Utility fund projects 3,075,000 Parking Facilities fund projects 84,407,000

Revenue Bonds Authorized and Unissued 87,482,000

Total Bonds Authorized and Unissued 198,716,258$



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Primary GovernmentBeginning Ending Amounts DueBalance Additions Reductions Balance Within One Year

GOVERNMENTAL ACTIVITIES:Bonds, Notes Payable and Capital Leases:

General obligation debt 484,782,164$ 151,190,280$ 45,260,732$ 590,711,712$ 49,876,790$ Notes 226,586 2,000,000 226,586 2,000,000 1,000,000 Capital leases 8,296,539 - 5,011,098 3,285,441 1,755,630

Total Bonds, Notes and Capital Leases 493,305,289$ 153,190,280$ 50,498,416$ 595,997,153$ 52,632,420$

Other Liabilities:Vested compensated absences 14,235,750$ 11,291,951$ 9,956,859$ 15,570,842$ 10,000,000$ Retirement system contribution 22,307,851 23,585,256 22,307,851 23,585,256 23,585,256 Other post-employment benefits - 5,634,896 195,130 5,439,766 5,439,766 Retiree's life insurance 620,000 - 60,000 560,000 60,000 Self-insurance 25,066,660 12,298,516 12,305,870 25,059,306 4,909,342 Landfill closure and post-closure costs 1,321,138 - 77,446 1,243,692 80,000

Total Other Liabilities 63,551,399$ 52,810,619$ 44,903,156$ 71,458,862$ 44,074,364$

Governmental ActivitiesLong-term liabilities 556,856,688$ 206,000,899$ 95,401,572$ 667,456,015$ 96,706,784$

Internal Service Funds:Capital leases 10,213$ -$ 2,510$ 7,703$ 2,621$ Retirement system contribution 404,285 308,160 404,285 308,160 308,160 Vested compensated absences 319,161 232,901 218,675 333,387 237,649

Total Internal Service Funds 733,659$ 541,061$ 625,470$ 649,250$ 548,430$

Total Governmental Activities 557,590,347$ 206,541,960$ 96,027,042$ 668,105,265$ 97,255,214$

BUSINESS-TYPE ACTIVITIES:Bonds and Notes Payable:

Water 284,667,735$ 58,415,000$ 10,766,731$ 332,316,004$ 11,807,731$ Wastewater 83,181,054 32,719,833 5,688,083 110,212,804 6,150,117 Parking facilities 95,744,306 3,857,692 3,554,453 96,047,545 3,482,958

Total Bonds and Notes Payable 463,593,095$ 94,992,525$ 20,009,267$ 538,576,353$ 21,440,806$

Other Liabilities:Vested compensated absences 1,420,799$ 1,216,303$ 1,097,766$ 1,539,336$ 995,962$ Retirement system contribution 2,423,808 1,774,140 2,423,808 1,774,140 1,774,140 Other post employment benefits - 602,234 - 602,234 602,234 Claims and judgements 1,920,000 3,817,615 1,920,000 3,817,615 2,537,615

Total Other Liabilities 5,764,607 7,410,292 5,441,574 7,733,325 5,909,951

Total Business-Type Activities 469,357,702$ 102,402,817$ 25,450,841$ 546,309,678$ 27,350,757$



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Beginning Ending Amounts DueBalance Additions Reductions Balance Within One Year

COMPONENT UNIT ACTIVITIES:

Other Liabilities:Vested Compensated Absences

Community Services Board 1,009,242$ 833,184$ 700,885$ 1,141,541$ 882,311$ Norfolk Public Schools 9,214,759 8,989,960 8,611,500 9,593,219 585,754

Pension Liability:Community Services Board 905,722 960,617 905,722 960,617 960,617

Other post employment benefitsNorfolk Public Schools - 2,255,000 - 2,255,000 2,255,000

Workers' Compensation ClaimsNorfolk Public Schools 1,612,585 834,337 820,523 1,626,399 160,842

Claims LiabilityNorfolk Public Schools 100,000 134,283 189,158 45,125 38,881

Total Component Unit-type Activities 12,842,308$ 14,007,381$ 11,227,788$ 15,621,901$ 4,883,405$

IX. Other Liabilities

Pursuant to a water services contract between the City of Norfolk and two wholesale customers, the Water Utilities fund conducts a rate true-up every two years to bring the projected rates developed at the start of the two-year period to the actual cost incurred during the period. In fiscal year 2008 the Water Utilities fund recorded a liability of $3,817,615 to reflect the true-up result. The amount due within one year is $2,537,615 and the long term portion is $1,280,000. The amount will be reimbursed to the wholesale customers by crediting each of their monthly billings during fiscal years 2009, 2010 and 2011.



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X. Pension Plans

The City and its component units participate in three defined benefit pension retirement plans. These include the Employees’ Retirement System (ERS) of the City of Norfolk (X.A); Virginia Retirement System (VRS) a plan administered by the Commonwealth of Virginia for the benefit of Norfolk School Board employees (X.B); and a VRS plan for the benefit of state employees in constitutional offices (X. C). In addition, the School Board has a defined contribution plan.

A. Employees’ Retirement System of the City of Norfolk (System):

Plan Description The Employees’ Retirement System of the City of Norfolk (System) is the administrator of a single-employer noncontributory, defined benefit plan that covers substantially all employees of the City, excluding School Board and Constitutional Officers’ employees who are covered by the Virginia Retirement System. The System provides retirement benefits as well as death and disability benefits. All benefits vest after 5 years of creditable service. Cost-of-living adjustments (“COLAs”) are provided at the discretion of the City Council. The System and its benefits are established by Section 37 of the Code of the City of Norfolk, Virginia as amended. The ERS is included as a Pension Trust fund in the City’s financial statements and also issues a separate publicly available financial report that includes financial statements and required supplementary information for the ERS. That report may be obtained by writing to Employees’ Retirement System of the City of Norfolk, City Hall Building, 810 Union Street, Suite 309, Norfolk, VA 23510. Funding Policy

Section 37 of the Code of the City of Norfolk, Virginia, established the authority under which the City’s obligation to contribute to the plan is determined. Contribution requirements are actuarially determined at the end of each fiscal year and paid by the City in the ensuing year. The contribution requirement of $25,667,556 for the year ended June 30, 2008 was based on 11.16 percent of covered payroll for general employees and 21.92% of covered payroll for public safety employees. This contribution requirement is recorded in the City’s Statement of Net Assets as a liability payable to the pension fund and will be made in fiscal year 2009.

Annual Pension Cost For 2008, the System’s annual pension cost was equal to the City’s required and actual (to be made in 2009) contribution. The required contribution was determined as part of the June 30, 2008 actuarial valuation using the projected unit credit cost method. The amortization method used is level dollar open. Significant actuarial assumptions included: (a) 7.5% investment rate of return (net of administrative expenses), (b) projected average salary increases of 5.46% and (c) assumed inflation rate of 3.5%. The actuarial value of assets was determined using



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techniques that smooth the effects of short-term volatility in the market value of investments over a three-year period. The remaining amortization period at June 30, 2008 was 19 years.

Three-Year Trend Information

Fiscal Year Annual Percentage of Net PensionEnded Pension Cost APC Contributed Obligation

June 30, 2008 25,667,556$ 100% -$ June 30, 2007 25,135,944$ 100% -$ June 30, 2006 25,728,228$ 100% -$

B. School Board – Retirement Plans

Plan Description – Virginia Retirement System (VRS) The School Board contributes to the Virginia Retirement System (VRS), an agent, which administers both multiple-employer and a cost-sharing multiple-employer defined benefit pension plan for the School Board. All full-time, salaried permanent employees of the School Board must participate in the VRS. Benefits vest after five years of service. Employees are eligible for an unreduced retirement benefit at age 65 with 5 years of service and at 50 with 30 years of service for participating employers payable monthly for life in an amount equal to 1.7% of their average final compensation (AFC) for each year of credited service. Benefits are actuarially reduced for retirees who retire prior to becoming eligible for full retirement benefits. In addition, retirees qualify for annual cost-of-living adjustments (COLA) beginning in their second year of retirement. The COLA is limited to 5% per year. AFC is defined as the highest consecutive 36 months of reported compensation. The VRS also provides death and disability benefits. Title 51.1 of the Code of Virginia (1950), as amended, assigns the authority to establish and amend benefit provision to the General Assembly of Virginia. VRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information for VRS. A copy of that report may be downloaded from their website at http://www.varetire.org/Pdf/2008AnnuRept.pdf or obtained by writing VRS at P. O. Box 2500, Richmond, VA 23218-2500. Funding Policy

Title 51.1 of the Code of Virginia (1950) requires plan members, as amended, to contribute 5% of their annual reported compensation to the VRS. The School Board has assumed the 5% member contribution. In addition, the School Board is required to contribute the remaining amounts necessary to fund its participation in the VRS using the actuarial basis specified by the Code of Virginia and approved by



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the VRS Board of Trustees. The School Board’s professional and nonprofessional employees’ contribution rates for the fiscal year ended June 30, 2008 were 10.3% and 8.62% of annual covered payroll, respectively (not including assumed 5%.) The School Board’s contributions to the VRS for the years ended June 30, 2008, 2007, and 2006 for professional employees were $37,858,170, $32,978,467, and $24,355,694, respectively, such amounts comprising 100% of the required contributions for three years. Annual Pension Cost – Agent Multiple-Employer Plan For 2008, the School Board’s annual pension costs of $2,454,422 for nonprofessional employees were equal to the School Board’s required and actual contributions. The required contribution was determined as part of the June 30, 2005 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions at June 30, 2007 included (a) 7.5% investment rate of return, (b) projected salary increases of 3.75% to 5.73% and (c) 2.5% per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 2.5%. The actuarial value of the School Board’s assets is equal to the modified market value of assets. This method was determined using techniques that smooth the effects of short-term volatility in the market value of assets over a five-year period. The amortization method is open and the remaining amortization period is 20 years.

Trend information for the School Board’s agent multiple-employer plan for nonprofessional employees is as follows:

School Board – Superintendent Defined Contribution Plan The School Board adopted a separate retirement plan for the Norfolk Superintendent of Schools in which the Superintendent could elect out of the defined benefit plan administered by VRS and opt into an Optional Retirement Plan for School Superintendents (ORPSS) under Virginia Code Section 51.1-126.6, also administered by VRS. The ORPSS is a defined contribution plan. For any plan year commencing after June 30, 2008, that the participant remains an eligible employee, the School Board will set the amount for the plan contribution on behalf of the participant using the percentage of gross annual salary authorized under Virginia Statue. The current percentage is 10.4%. For the plan year, the School Board, in its discretion may contribute to another qualified or non-qualified plan an additional amount not to exceed the difference between the amount contributed to the ORPSS and $25,000.


June 30, 2008 2,454,422$ 100% -$ June 30, 2007 2,220,834 100% -$ June 30, 2006 1,603,078 100% -$



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The Virginia Retirement System is the administrator of the plan and Great West Retirement is the trustee. Contributions for the year ended June 30, 2008, were fixed contributions of $21,372.

C. State Employees – Virginia Retirement System (VRS):

Plan Description

The City of Norfolk contributes to the Virginia Retirement System (VRS), an agent, which administers both multiple-employer and a cost-sharing multiple-employer defined benefit pension plan for the City of Norfolk. All full-time, salaried permanent state employees in the City’s five constitutional offices must participate in the VRS. These offices include: Commissioner of the Revenue, City Treasurer, Circuit Courts, Commonwealth’s Attorney, and Sheriff and Jail. Benefits vest after 5 years of service. Employees are eligible for an unreduced retirement benefit at age 65 with 5 years of service (age 60 with 5 years of service for participating law enforcement officers and firefighters) and age 50 with 30 years of service for participating employers (age 50 with 25 years of service for participating law enforcement officers and firefighters) payable monthly for life in an amount equal to 1.7% of their average final salary (AFS) for each year of credited service. In addition, retirees qualify for annual cost-of-living increases limited to 5% per year in their second year of retirement. AFS is defined as the highest consecutive 36 months of salary. Benefits are actuarially reduced for retirees who retire prior to becoming eligible for full retirement benefits. Participating law enforcement officers may receive a monthly benefit supplement if they retire prior to age 65. The VRS also provides death and disability benefits. Title 51.1 of the Code of Virginia (1950), as amended, assigns the authority to establish and amend benefit provisions to the State legislature. The VRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information for VRS. A copy of that report may be obtained by writing to VRS at P.O. Box 2500, Richmond, VA, 23218-2500. Funding Policy

Plan members are required by Title 51.1 of the Code of Virginia (1950), as amended, to contribute 5% of their annual salary to the VRS. The 5% member contribution has been assumed by the City. In addition, the City is required to contribute the remaining amounts necessary to fund its participation in the VRS using an actuarial basis specified by the Code of Virginia and approved by the VRS Board of Trustees. The City’s contribution rate for the year ended June 30, 2007 was 4.85% of annual covered payroll. Contributions to the VRS for the year ended June 30, 2008 were $2,375,759 equal to the required contribution. Annual Pension Cost For 2008, the City’s annual pension cost of $2,375,759 was equal to the City’s required and actual contribution. The required contribution was determined as part of the June 30, 2007 actuarial valuations using the entry age normal actuarial cost



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method. The amortization method is level percent open. The actuarial assumptions included: (a) 7.5% investment rate of return; (b) projected salary increases that range between 3.75% to 5.60% per year, and (c) 2.5% per year cost-of-living adjustments. Both (a) and (b) include an inflation component of 2.5%. The actuarial value of the City’s assets is equal to the modified market value of assets. This method was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a five-year period. The remaining amortization period is 20 years.

Trend information for the City VRS plan is as follows:

XI. Deferred Compensation Plan

The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. The deferral may be up to 25% of gross income up to a maximum of $15,500 per year. The deferred compensation plan is not available to employees until termination, retirement, death or unforeseeable emergency.

The laws governing the City’s deferred compensation plan have been complied with pursuant to the provisions of IRC Section 457. Accordingly, all assets of the plan are held in trust for the exclusive benefit of the participants and their beneficiaries.

XII. Other Post-employment Benefits (OPEB)

Plan Description The City of Norfolk and the Norfolk School Board provide post-retirement health care benefits, in accordance with state statutes, which require extending access to healthcare benefits to certain retirees. General City employees are eligible to participate at the earlier of age 55 and 15 years of creditable service or 25 years of creditable service. City firefighters and police officers, who have a mandatory retirement age of 62, are eligible to participate at the earlier of age 50 and 15 years of creditable service or 20 years of creditable service. Employees who retire on accidental disability are also eligible. Grandfathered school employees who are older than age 50 with at least 5 years of service are eligible as well as non-grandfathered school employees who are older than age 50 with 15 years of creditable service. Retirees that elect to participate


June 30, 2008 2,375,759$ 100% -$ June 30, 2007 2,305,090$ 100% -$ June 30, 2006 1,811,851$ 100% -$



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may purchase health care coverage using the same health care plans and premium structures available to active employees. Retiree participation, plan/benefit elections and contributions, are administered by the City’s Retirement Bureau and the City’s and the Schools’ benefits offices based on the participation guidelines established by the Norfolk City Council and Norfolk School Board. Benefits are currently managed on a pay-as-you-go basis rather than use of an irrevocable trust and a separate financial report of the OPEB Plan is not issued. Funding Policy No employee contributions are required prior to retirement to participate in or fund the OPEB Plan. Currently, the City and Schools pay a set amount towards the monthly premium for participating retirees. This set contribution amount is an explicit subsidy of $25 per month for the City and $75 per month for the Schools per participating retiree. Retirees may not convert the benefit into an in-lieu payment to secure coverage under independent plans. The plan sponsors also pay an implicit subsidy by allowing retirees to participate in the same benefit plans under the same premium structure as available to active employees, however, the plan sponsors are not required to fund the plan other than the pay-as-you-go amount necessary to provide current benefits to employees.

Annual OPEB Cost and Net OPEB Obligation The City’s and School’s annual OPEB cost (expense) is calculated based on the annual required contribution (ARC), an amount actuarially determined in accordance with GASB Statement No. 45. Under this Statement, governments report on an accrual basis, benefit costs related to the period in which benefits are earned rather than to the period of benefit distribution. The annual required contribution represents a level of funding that, if paid on an on-going basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years.



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Using the most recent OPEB plan valuation date of July 1, 2007, the following table shows the components of the City’s and School’s annual OPEB costs projected for the current fiscal year, the amounts contributed to the Plan and the changes in the net OBEB obligation (amounts in millions):

City Schools Total Actuarial liability:

Active employees $23.2 42.8 $ 66.0 Retirees 20.4 16.9 37.3

Total actuarial liability 43.6 59.7 103.3 Less: plan assets 0.0 0.0 0.0 Unfunded actuarial accrued

liability (UAAL) $43.6 59.7 $103.3

City Schools Total Annual required contribution:

Normal cost $4.48 2.68 $ 7.16 UAAL amortization 1.56 2.14 3.70

Total ARC $6.04 4.82 $10.86 Less: contributions made 2.26 2.56 4.82 Increase in net OPEB

obligation $3.78 2.26 $ 6.04 Net OPEB obligation at

beginning of the year 0.0 0.0 0.0 Net OPEB obligation end of

year $3.78 2.26 $ 6.04 Funded Status and Funding Progress

As of July 1, 2007, the most recent actuarial valuation date, the OPEB Plan was unfunded. The actuarial accrued liability for benefits was $103.3 million and the actuarial value of assets was $0 resulting in an unfunded actuarial accrued liability (UAAL) of $103.3 million. The covered payroll of active City and School employees covered by the plan was $403.4 million, and the ratio of the UAAL to the covered payroll was 25.6 percent. Additional details on the plan’s funded status and funding progress are included as required supplementary information following these notes to the financial statements.



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Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the plan and include the types of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The actuarial valuation was performed as of July 1, 2007 with results projected for the fiscal year ended June 30, 2008. The entry age normal actuarial cost method was used with a level percent closed amortization method over 30 years. A discount rate, reflecting the value of future tax dollars, of 4.7% was used, which approximates the City’s recent cost of borrowing. Annual rates of health care costs and salary costs used were 10% and 4.5% respectively. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events in the future. Actuarial valuations are subjected to continual revisions as actual results are compared to past expectations and new estimates are made about the future.



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XIII. Interfund Receivable and Payable Balances

The composition of interfund activity as of June 30, 2008 is as follows: Due to/from other funds: Receivable Fund Payable Fund AmountGeneral fund Capital Projects fund 678,703$

Water Utility fund 1,633,655 Nauticus fund 412,508 Grants fund 55,417 Stormwater fund 390 Fleet Management fund 113,362 Storehouse fund 69,599 Emergency Operation Center - 911 fund 939,012 Community Development fund 210,421 Total General fund 4,113,067$

Capital Projects fund Water Utility fund 465,085$ Wastewater fund 6,564,564 Parking Faciltiy fund 5,033,311Fleet Management fund 57,874 Total Capital Projects fund 12,120,834$

Nonmajor governmental funds General fund 6,647,121$ Maritime Facility fund 11,648 Fleet Management fund 35,000 Wastewater Utility fund 132,612 Total Nonmajor governmental funds 6,826,381$

Water Utility fund General fund 1,144$ Total Water Utility fund 1,144$

Wastewater fund Water Utility fund 83$ Total Wastewater fund 83$ Total enterprise funds 1,227$

Internal service funds Grants fund 88,400$

The outstanding balances between funds result mainly from the time lag between the dates (1) interfund goods and services are provided or reimbursement occurs, (2) transactions are recorded in the accounting system, and (3) payment between funds are made.



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XIV. Interfund Transfers

The following interfund transfers occurred during fiscal year 2008:

Fund In Out

General fund 10,000,000$ 86,197,266$ Debt Service fund 58,921,220 - Capital Projects fund 20,504,313 - Nonmajor governmental funds 20,475,092 13,456,330 Internal service funds: Fleet Management fund - 35,000 Enterprise: Water Utility fund - 8,500,000 Wastewater Utility fund - 1,632,612 Parking Facilities fund - 79,417

109,900,625$ 109,900,625$

The purpose of the transfer balances are as follows: General fund transfers in of $10,000,000 include $1,500,000 from the wastewater fund and $8,500,000 and from the water utility fund and represent a return on investment back to the general fund. The general fund transfers out of $86,197,266 represents a transfer of $56,960,118 to the debt service fund to fund general obligation debt; $9,326,313 to the capital projects fund as a contribution for annual capital improvement plan budget; $13,614,609 to the grants fund in support of grant projects; $2,437,772 to the Nauticus fund, $749,156 to the cemeteries fund, $1,627,767, Emergency Operations/E-911 fund, and $1,481,531 to the Maritime Facility fund.

Debt service transfers in include $1,744,352 from the Storm Water fund, $216,750 from the Public Amenities fund and $56,960,118 from the General fund to fund the current year’s debt service payments. The Storm Water special revenue fund transferred $1,744,352 to the Debt Service fund to cover its debt service cost and $500,000 to the Capital Projects fund in support of related capital projects. The Public Amenities special revenue fund transferred $9,050,000 to the Capital Projects fund in support of the fund’s capital related projects and $216,750 to cover its debt service cost. The Land Acquisition special revenue fund transferred $1,228,000 to the Capital Projects fund in support of the fund’s capital related projects.



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The nonexpendable special revenue fund transferred $305,580 to the Cemeteries fund in support of the city’s cemeteries. The Maritime Facility special revenue fund transferred $11,648 to the Grants special revenue type fund for support. The Golf special revenue fund transferred $400,000 to the Capital Projects fund in support of the fund’s capital related projects. The Fleet Management internal service fund transferred $35,000 to the Grants special revenue type fund for re-encumbrances for purchase of goods and services. The Water and Wastewater funds transferred $8,500,000 and $1,500,000 to the General fund as a return on investment, respectively. The Wastewater fund transferred $132,612 to the Grants Fund for pre-encumbrances for the purchase of goods and services. The Parking Facilities fund transferred $79,417 to the Maritime Facility fund to cover parking costs of cruise customers. The general fund also transferred $101,094,910 to the School Board component unit, and $3,701,000 to the Community Service Board component unit during the fiscal year. These amounts are reported as expenses in the primary government’s financial statements, and revenues in the component unit financial statements.

XV. Recovered Costs

Recovered cost in the General fund: Public Health Center $ 933,193 Information Systems recoveries 1,462,487 Retirement Bureau 477,015 Debt service recoveries 223,760 Administrative costs recoveries from enterprise funds 3,328,657 Other 2,195,024 Total recovered costs in the General fund $ 8,620,136

Recovered Cost in the non-major funds Public safety $ 1,460 Grand total $ 8,621,596



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XVI. Other Liabilities

Other liabilities, as presented in the Fund Financial Statements, consist of the following:

Governmental Funds: General fund - miscellaneous 3,552,339$ General fund - accrued expenditures 2,677,050 Capital Projects fund - miscellaneous 3,372 Grants fund - miscellaneous 180,447

6,413,208$

Enterprise Funds: Water Utility fund - miscellaneous 550,571 Wastewater Utility fund - miscellaneous 341,059 Parking Facilities fund - miscellaneous 582,659

1,474,289$

Fiduciary Funds: Other funds 9,737,869$ Commonwealth of Virginia 18,114

9,755,983$

XVII. Supplemental Appropriations

The following supplemental appropriations were made to the general fund operating budgets during the fiscal year:

General Fund:Approved fiscal year 2007-2008 budget 795,835,700$ Supplemental appropriations from additional revenue:

Anticipated revenue from Norfolk Redevelopment and Housing Authority for rent 300,000

Supplemental appropriations from general fund fund balance:

Additional funds appropriated from fund balance for various programs 9,186,521 Additional funds appropriated to cover costs associated with capital improvement increases 5,400,000

Total supplemental appropriations 14,886,521

Final budget 810,722,221$



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XVIII. Unearned Revenue

Deferred revenue, as represented in the fund financial statements at June 30, 2008 totals $30,761,063 and is comprised of the following: A. Deferred grant funding

In the special revenue funds, unearned revenue of $812,620 represents monies accepted from a grantor using an advancement method for payments. The amount is reduced and revenue is recorded when expenditures are incurred in accordance with the grantors’ requirements. If expenditures are not incurred, the funds will revert back to the grantors. In the community development fund, the unearned revenue represents deferred payment rehabilitation loans of $592,978 as of June 30, 2008.

B. Deferred property tax revenue

Unearned revenue in the general fund, representing uncollected tax billings not available for funding of current expenditures as of June 30, 2008 is $29,901,167.

C. Other receivable

Unearned revenue in the storm water special revenue fund, representing deferred billings that have been earned but are not available for funding current expenditures at June 30, 2008, totals $219,642.



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XIX. Commitments and Contingencies

A. Capital projects

Commitments for completion of capital projects in the Business-Type Activities, authorized at June 30, 2008 are as follows:

Water utility development projects $ 13,000,000Wastewater utility development projects 14,019,692Parking facilities development projects 47,798,360Total $ 74,818,052

Commitments for completion of capital projects in the Governmental Activities, authorized at June 30, 2008 are $57,185,721. See Exhibit J-3 Capital Improvement Program Schedule of Expenditures for listing of projects.

B. Contingent liabilities

Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts, if any, to be immaterial.

C. Litigation

From time to time the City and its component units are defendants in a number of lawsuits. Although it is not possible to determine the final outcome on these matters, management and the City attorney are of the opinion that the liability will not be material and will not have a significant effect on the City’s financial condition.



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XX. Surety Bonds and Insurance

Surety Official Amount Commonwealth of Virginia Sharon McDonald, Commissioner of the Revenue $ 3,000

Thomas W. Moss, Jr., City Treasurer 1,500,000 Robert J. McCabe, Sheriff 30,000 George E. Schaefer, Clerk of the Circuit Court 2,235,000 Total Commonwealth of Virginia $ 3,768,000

Commonwealth of Virginia All employees of the City Treasurer, Sheriff,

Commissioner of the Revenue, Commonwealth’s Attorney, and Clerk of the Circuit Court

Performance of Duty Bond $ 500,000 City of Norfolk Travelers Insurance Co.

All City employees $10,000,000 XXI. Self and Purchased Insurance Programs

The City is exposed to various risks of losses related to torts; theft and destruction of assets; errors and omissions; injuries to employees; and, natural disasters. On July 11, 1978, the City established a protected self-insurance program fund, pursuant to an ordinance adopted by City Council, to cover itself from these risks of losses. The program provides for the payment of claims liabilities, property losses, and related expenses covered by a combination of purchased insurance policies and self- insurance plans. The total of insurance premiums, self-insurance claims, and related expense payments made during fiscal year 2008 was $14,148,283. The City currently reports all these activities as part of the risk management function in the general government section of the General fund. Claims expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. At June 30, these liabilities were $25,059,306 of which $4,909,342 represents the current portion anticipated to be paid within a year. Changes in the City’s claims liability amount in the fiscal years 2007 through 2008 are as follows:

During fiscal year 2008, the City paid a large automobile liability claim in the amount of $7.5 million. The obligation was met without decrementing the City’s financial stability

Unpaid Claims Beginning Balance

Claims Incurred

Estimated Claims PaidEnding Balance

2007 19,922,358 10,659,920 5,515,618 25,066,6602008 25,066,660 12,313,224 12,305,870 25,059,306



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and operational continuity. At the present time, this particular claim is viewed as a statistical anomaly when compared to the City’s recent years and long-term loss experience, is not anticipated as being indicative of the City’s change in trends, and is not representative of anticipated loss events that would threaten the City’s financial sustainment in the foreseeable future. Until fiscal year 2008, aggregate annual automobile liability claims costs, included in the total liability claims paid figures above, had been less than $1 million, with singular incidents paid at significantly lesser amounts. The City continues to self-insure most of its automobile liability risks since a formal plan was adopted in 1985.

XXII. Jointly Governed Organizations A. Hampton Roads Regional Jail Authority (HRRJA)

HRRJA is a regional organization which includes the cities of Hampton, Newport News, Norfolk and Portsmouth, created for the purpose of providing, operating and maintaining a regional jail facility for the correctional overflow from each community. HRRJA is a primary government, with no component units, that is a body politic and corporate created pursuant to Article 3.1, Chapter 3, Title 53.1 of the Code of Virginia, as amended, and is governed by a twelve member Board of Directors, consisting of three representatives appointed by each of the member cities. The budgeting and financing of HRRJA are subject to the approval of the Board of Directors, with each individual having a single vote. HRRJA is responsible for its own financial matters, maintains its own books of account and is audited annually by independent accountants that it engages.

The participating governments do not have an equity interest in the HRRJA, and accordingly, no equity interest has been reflected in the City’s financial statements at June 30, 2008. Complete financial statements of HRRJA can be obtained from HRRJA.

B. Hampton Roads Planning District Commission (the Commission)

A regional planning agency authorized by the Virginia Area Development Act of 1968, was created by the merger of the Southeastern Virginia Planning District Commission and the Peninsula Planning District Commission on July 1, 1990. The Commission performs various planning services for the cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Portsmouth, Poquoson, Suffolk, Williamsburg and Virginia Beach, and the counties of Gloucester, Isle of Wight, James City, Southampton and York. Revenue of the Commission is received primarily from local governmental (member) contributions and various state and federal grant programs. The participating governments do not have an equity interest in the Commission, and accordingly, no equity interest has been reflected in the City’s financial



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statements at June 30, 2008. Complete financial statements of the Commission can be obtained from the Commission.

C. Tidewater Transportation District Commission (TTDC)

A political subdivision of the Commonwealth of Virginia formed on May 9, 1973, as a joint exercise of governmental power in accordance with provisions of Chapter 32 of Title 15.1 of the Code of Virginia. TTDC provides public transportation facilities and services within the cities of Norfolk, Portsmouth, Virginia Beach, Chesapeake and Suffolk, Virginia. Oversight responsibility is exercised by all of the participating localities through their designated representatives. Responsibility for the day-to-day operations of TTDC rests with professional management. The participating governments do not have an equity interest in TTDC, and accordingly, no equity interest has been reflected in the City’s financial statements at June 30, 2008. Complete financial statements of TTDC can be obtained from TTDC.

XXIII. Joint Venture Southeastern Public Service Authority (SPSA) SPSA is a joint venture of the cities of Chesapeake, Franklin, Norfolk, Portsmouth, Suffolk and Virginia Beach and the counties of Isle of Wight and Southampton, created for the purpose of providing, operating and maintaining a regional system for the collection, transfer, processing and disposal of solid waste refuse. SPSA is a primary government, with no component units, that is a public body politic and corporate created pursuant to the Virginia Water and Sewer Authorities Act, and is governed by an eight-member Board of Directors consisting of a representative appointed by each of the member cities and counties. Budgeting and financing of SPSA is subject to the approval of the Board of Directors with each representative having a single vote. The Authority is responsible for its own financial matters, maintains its own books of account and is audited annually by independent accountants that it engages.

The participating governments do not have an equity interest in SPSA, and accordingly, no equity interest has been reflected in the City’s financial statements at June 30, 2008. Complete financial statements of the SPSA can be obtained from SPSA.



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XXIV. Related Organizations

A. Norfolk Redevelopment and Housing Authority (NRHA)

The Norfolk Redevelopment and Housing Authority (NRHA), a political subdivision of the Commonwealth, was created by the City on July 30, 1940, under the provisions of the United States Housing Act of 1937. NRHA provides subsidized public housing and administers redevelopment and conservation efforts within the City in accordance with State and federal legislation. The seven members of the Board of Commissioners are appointed by City Council. NRHA is responsible, through a contract with the City, for the administration of such activities as community development and urban renewal. NRHA develops its operating budget without approval from City Council and executes contracts on its own behalf. NRHA is responsible for its own fiscal matters as it maintains its own book of accounts, is audited annually by independent accountants it engages, and has authority over earnings, deficits and monies other than City contract funds. The City contracts with NRHA to complete specific projects, generally capital improvement projects. In 1997, the City entered into a supplemental cooperation agreement with NRHA to assist in the financing and construction of the Nordstrom store, in the MacArthur Center regional shopping mall. The construction of the Nordstrom store was financed with a loan partially secured by ground rental and store rental payments. The loan was further secured by a pledge of the City, subject to an appropriation of City Council, to fund any deficits in meeting annual debt service requirements. At the conclusion of a ten-year restriction, this loan was refinanced by the City in January 2008. In prior years, primarily due to the financial relationship created by the loan, NRHA was considered to be a component unit of the City.

B. Norfolk Airport Authority

Norfolk Airport Authority, a political subdivision of the Commonwealth, was created to operate an airport and to promote industrial growth and consists of both an Airport fund and an Investment fund. The Airport fund was established by the Authority to account for the operations of the Norfolk International Airport (the Airport). Revenue generated by airport operations is used to meet all operating expenses and to provide for payment of all principal and interest on debt of the Authority related to the Airport. The Investment fund was established by the Authority to provide for certain airport capital improvements. The Authority finances individual capital projects by issuing bonds or obtaining loans and intergovernmental grants in its own name and concurrently entering into leases which provide for payment of all principal and interest on the related obligations as they become due. Revenue includes rental income on non-airport property owned by the Authority and interest on investments. The Authority's Commissioners are appointed by City Council but the Commission designates its own management and has oversight responsibility for its own fiscal matters. The City does not provide funds for the operations of the Authority and, pursuant to



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Section 144(q) of the City Charter; the Authority is required to submit its annual budget to the City Council for the purposes of information only. The City has the option to reacquire, without consideration, title to all property and equipment after payment by the Authority of all obligations relating to the improvements at the Airport.

C. The Economic Development Authority of the City of Norfolk (EDA)

The Economic Development Authority, a political subdivision of the Commonwealth of Virginia, was created by ordinance of the City of Norfolk in 1972, pursuant to the provisions of the Economic Development and Revenue Bond Act of the Commonwealth of Virginia (Title 15.1, Chapter 33, Section 15.1-1373, et seq., of the Code of Virginia (1950), as amended. It is authorized to acquire, own, lease and dispose of properties to the end that such activities may promote industry and develop trade by inducing manufacturing, industrial and commercial enterprises to locate or remain in the City and further the use of the Commonwealth's agricultural and natural resources. The EDA is empowered by the Commonwealth to authorize industrial development bonds and confer tax-exempt status on interest paid to financial institutions. The EDA acts as an intermediary between financial institutions and borrowers; it has no responsibility for borrowers' debt. Although Commissioners are appointed by City Council, the EDA designates its own management, which is self-sustaining, maintains its own books of account, engages its own independent accountant, and receives its revenue from administrative fees charged to borrowers.

D. The Chrysler Museum, Inc. (the Museum)

The Chrysler Museum, a Virginia non-stock, not-for-profit organization, was formed on January 1, 1980 by incorporating the Chrysler Museum at Norfolk. The main purpose of the Museum is the advancement, encouragement and promotion of the study and appreciation of art. The Museum designates its own management, which is self-sustaining, maintains its own books of account, engages its own independent accountant, and receives its revenue from administrative fees charged to visitors and from other independent grants.

E. The Hospital Authority of Norfolk (HAN)

The Hospital Authority of Norfolk, which has a nine-member Board of Commissioners appointed by City Council, is a tax-exempt, not-for-profit political subdivision of the Commonwealth created pursuant to an Agreement of Transfer dated July 1, 1998. HAN operates Lake Taylor Hospital as a long-term care facility licensed by the Virginia State Health Department to provide a continuum of patient care ranging from sub-acute hospital services to skilled nursing care.



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XXV. Subsequent Event After the close of the fiscal year ended June 30, 2008, global economic conditions have

changed and the City, like all other localities, is monitoring the conditions to determine and mitigate potential fiscal impacts. Recent market conditions have resulted in a high degree of volatility and increased the risks and short term liquidity associated with certain investments held by the City’s retirement system which could impact the value of the investments after the date of these financial statements. While there has been a negative return on the systems assets through November 30 2008, the ultimate impact on the funded status will be determined based upon market conditions in effect when the retirement system’s assets are measured on June 30, 2009.

XXVI. Accounting Pronouncements Issued But Not Yet Implemented

The GASB has issued several pronouncements that may impact future financial presentations. Management has not currently determined what, if any, impact implementation of the following statements will have on the City.

• GASB Statement 49, Accounting and Financial Reporting or Pollution Remediation

Obligations, identifies the circumstances under which a governmental entity would be required to report a liability related to pollution remediation. According to the standard, a government would have to estimate its expected outlays for pollution remediation if it knows a site is polluted and any of the following recognition triggers occur:

o Pollution poses an imminent danger to the public or environment and the

government has little or no discretion to avoid fixing the problem; o A government has violated a pollution prevention related permit or

license; o A regulator has identified (or evidence indicates it will identify) a

government as responsible (or potentially responsible) for cleaning up pollution, or for paying all or some of the cost of the clean up;

o A government is named (or evidence indicates that it will be named) in a lawsuit to compel it to address the pollution; and

o A government begins or legally obligates itself to begin cleanup or post-cleanup activities (limited to amounts the government is legally required to complete).

Statement 49 requires governments to disclose information about their pollution obligations associated with clean up efforts in the notes to the financial statements. Statement 49 will be effective for financial statements for periods beginning after December 15, 2007, but liabilities should be measured at the beginning of that period so that the beginning net assets can be restated.

• GASB Statement 51, Accounting and Financial Reporting for Intangible Assets.

GASB 51 requires that all intangible assets not specifically excluded by its scope



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provisions be classified as capital assets. Accordingly, existing authoritative guidance related to the accounting and financial reporting for capital assets should be applied to these intangible assets, as applicable. Additionally, GASB 51 establishes a specified-conditions approach to recognizing intangible assets that are internally generated and establishes criteria for when such expenditures should be capitalized. GASB 51 is effective for periods beginning after June 15, 2009, and generally requires its provisions to be applied retroactively.

• GASB Statement 53, Accounting and Financial Reporting for Derivative Instruments.

GASB 53 addresses the recognition, measurement and disclosure of of information regarding derivative instruments entered into by state and local governments to manage specific risks or to make investments. A key provision of this statement is that derivative instruments covered in its scope with limited exception, are reported at fair value. For many derivative instruments, historical prices are zero because their terms are developed so that the instruments may be entered into without a payment being received or made. The changes in fair value of derivative instruments used for investment purposes are reported within the investment revenue classification. Alternatively, changes in fair value of derivative instruments that are classified as hedging derivative instruments are reported in the statement of net assets as deferred inflows or outflows. Effectiveness of the instruments is to be analyzed. Objectives, terms and risks of hedging derivative instruments are required disclosures. Disclosures also will include a summary of derivative instrument activity that provides an indication of the fair value amounts reported on the financial statements. The improvements under GASB 53, which becomes effective for periods beginning after June 15, 2009, should allow users of a government’s financial statements to more fully understand resources available to provide services.

REQUIRED SUPPLEMENTARY

INFORMATION (OTHER THAN MANAGEMENT’S

DISCUSSION & ANALYSIS)

(Unaudited)


Unfunded(Overfunded)

Actuarial Actuarial Actuarial Actuarial UAAL as aValuation Value of Accrued Accrued Funded Covered percentage of

Date Assets Liability (AAL) Liability (UAAL) Ratio Payroll covered payroll

Retirement Plans:

CITY - EMPLOYEES' RETIREMENT SYSTEMJune 30, 2004 816,100,000$ 845,700,000$ 29,600,000$ 96.5% 157,700,000$ 18.8%June 30, 2005 854,100,000$ 883,900,000$ 29,800,000$ 96.6% 160,200,000$ 18.6%June 30, 2006 881,000,000$ 939,100,000$ 58,100,000$ 93.8% 159,300,000$ 36.5%June 30, 2007 925,800,000$ 972,200,000$ 46,400,000$ 95.2% 168,100,000$ 27.6%June 30, 2008 937,800,000$ 1,009,100,000$ 71,300,000$ 92.9% 175,400,000$ 40.6%

CITY - VRS EMPLOYEESJune 30, 2003 28,802,620$ 23,822,673$ (4,979,947)$ 120.9% 20,546,354$ -24.2%June 30, 2004 30,349,720$ 26,612,472$ (3,737,248)$ 114.0% 21,369,062$ -17.5%June 30, 2005 32,467,638$ 32,346,396 (121,242)$ 100.4% 22,898,124$ -0.5%June 30, 2006 35,756,786$ 36,121,461 364,675$ 99.0% 23,344,075$ 1.6%June 30, 2007 41,467,595$ 40,237,331 (1,230,264)$ 103.1% 24,931,958$ -4.9%

SCHOOL BOARD COMPONENT UNIT - VRS NON-PROFESSIONAL EMPLOYEESJune 30, 2003 53,170,951$ 51,919,382$ (1,251,569)$ 102.4% 13,052,011$ -9.6%June 30, 2004 52,765,749$ 54,345,074$ 1,579,325$ 97.1% 13,647,900$ 11.6%June 30, 2005 52,906,114$ 61,150,786$ 8,244,672$ 86.5% 14,211,173 58.0%June 30, 2006 55,282,776$ 60,006,661$ 4,723,885$ 92.1% 14,246,198 33.2%June 30, 2007 61,180,012$ 66,118,525$ 4,938,513$ 92.5% 15,236,207 32.4%

Other Post-employment Benefits (OPEB):

CITY EMPLOYEES AND RETIREESJuly 1, 2007 -$ 43,566,000$ 43,566,000$ 0.0% 170,956,000$ 25.5%

SCHOOL EMPLOYEES AND RETIREESJuly 1, 2007 -$ 59,700,000$ 59,700,000$ 0.0% 232,465,000$ 25.7%

TOTALJuly 1, 2007 -$ 103,266,000$ 103,266,000$ 0.0% 403,421,000$ 25.6%

REQUIRED SUPPLEMENTARY INFORMATIONSchedule of Funding Progress (unaudited)

84

CITY OF NORFOLK, VIRGINIA Exhibit E-1

PositiveBudget (negative)

Original Final Basis Variance withBudget Budget Actual Final Budget

General property taxes 234,990,000$ 234,990,000$ 238,739,614$ 3,749,614$ Other local taxes 156,234,500 156,234,500 153,068,673 (3,165,827)Permits, privilege fees, licenses 4,012,700 4,012,700 4,055,323 42,623Fines and forfeitures 1,525,000 1,525,000 1,307,680 (217,320)Revenue from use of money and property 8,534,700 8,834,700 8,165,289 (669,411)Charges for services 23,873,000 23,873,000 25,043,911 1,170,911Miscellaneous revenue 4,295,000 4,295,000 4,809,869 514,869Recovered costs 9,584,700 9,584,700 8,620,136 (964,564)Non-categorical aid - Virginia 34,942,800 34,942,800 34,172,905 (769,895)Shared expense - Virginia 21,465,800 21,465,800 21,233,397 (232,403)Categorical aid - Virginia 271,419,100 271,419,100 269,132,997 (2,286,103)Categorical aid - Federal 6,247,000 6,247,000 5,078,241 (1,168,759)Interfund transfers 18,711,400 33,297,921 33,297,921 -

795,835,700$ 810,722,221$ 806,725,956$ (3,996,265)$

Schedule of Revenue, Budget and Actual (Unaudited)General Fund


Total revenue budget

85

CITY OF NORFOLK, VIRGINIA Exhibit E-2

PositiveBudget (negative)

Original Final Basis Variance withBudget Budget Actual Final Budget

Legislative 4,232,700$ 4,292,716$ 4,269,963$ 22,753$ Executive 1,925,500 1,952,185 1,953,192 (1,007)Department of Law 3,788,100 3,886,814 3,899,152 (12,338)Finance 24,677,700 24,897,909 24,848,857 49,052Department of Human Resources 3,976,700 4,007,926 3,976,720 31,206Courts, Sheriff and Detention 44,960,600 45,711,461 45,947,330 (235,869)Department of Public Health 5,835,100 5,860,705 5,794,744 65,961Department of Human Services 61,142,300 62,095,420 61,793,156 302,264Department of Public Works 43,194,400 43,437,942 42,572,180 865,762Neighborhood & Leisure Services 20,945,300 22,516,492 22,012,341 504,151Education 314,707,700 316,907,700 316,471,478 436,222Norfolk Public Libraries 7,956,400 8,019,600 8,045,366 (25,766)Elections 581,800 648,298 641,143 7,155Department of Planning 4,741,500 4,799,421 4,536,822 262,599Department of Civic Facilities 6,477,300 6,526,427 6,612,705 (86,278)Departmental support 27,020,200 28,703,589 28,883,245 (179,656)Outside agencies 34,272,200 32,703,372 32,659,179 44,193Department of Police 58,657,000 59,874,983 60,912,190 (1,037,207)Department of Fire and Rescue 36,047,900 37,613,074 37,820,320 (207,246)Public safety support - 5,710 5,710 - Debt service 71,333,000 76,683,000 72,254,631 4,428,369Budget and Management 878,400 890,526 854,650 35,876Economic Development 2,103,600 2,107,092 1,926,591 180,501Intergovernmental Programs 573,300 576,328 566,928 9,400Communications and Public Relations 1,576,300 1,636,596 1,665,451 (28,855)Department of Information Technology 10,328,400 10,418,711 10,367,234 51,477Office of Grants Management 222,600 235,576 244,577 (9,001)Virginia Zoological Park 3,484,100 3,516,527 3,531,625 (15,098)Office of Homelessness 195,600 196,121 170,282 25,839

Total General fund expenditure budget 795,835,700$ 810,722,221$ 805,237,762$ 5,484,459$

Schedule of Expenditures, Budget and Actual (Unaudited)General Fund


86


General Fund

Sources/inflows of resources:Actual amounts (budgetary basis) "available for appropriation" from Exhibit E-1 806,725,956$ Differences--budget to GAAP: The effects of accounting for school revenue as a component unit (213,199,790)

The effects of accounting for revenue on a modified accrual basis (23,297,921)

General fund transfers from other funds are inflows of budgetary resources but are not revenues for financial reporting purposes (10,000,000)

Total revenues as reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 560,228,245$

Uses/outflows of resources:Actual amounts (budgetary basis) "Total charges to appropriations" from Exhibit E-2 805,237,762$

Differences--budget to GAAP: The effects of accounting for school expenditures as a component unit (215,376,568)

Equipment purchased with bond proceeds 11,320,660

The effects of accounting for the FY-08 5% budget reserve (1,162,121)

The effects of accounting for future year expenditures (956,750)

Encumbrances for supplies and equipment ordered but not received is reported in the year the order is placed for budgetary purposes, but in the year the supplies are received for financial reporting purposes 2,794,155

General fund transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes (86,197,266)

Total expenditures as reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances--Governmental Funds 515,659,872$

There were no material violations of the annual appropriated budget for the General fund for the fiscal year

Reconciliation of (non-GAAP) Budgetary Basis to GAAP (Unaudited)Notes to Required Supplementary Information

June 30, 2008

87

OTHER SUPPLEMENTARY INFORMATION

COMBINING FINANCIAL

STATEMENTS

~ Nonmajor Governmental Funds ~ ~Agency Funds ~

~ Internal Service Funds ~

OTHER SCHEDULES ~ Schedule of Expenditures of Federal Awards ~

~ Notes to Schedule of Expenditures of Federal Awards ~

~ Schedule of Revenues and Expenditures – Budget and Actual – Special Revenue Funds ~

Schedule of Revenues and Expenditures – Budget and

Actual – Internal Service Funds ~

Schedule of Revenues and Expenditures – Budget and Actual – Capital Projects Fund ~

Nonmajor Governmental Funds

Special Revenue Funds

The Special Revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes. The individual special revenue funds are: Storm Water Fund: To account for the operation of the environmental storm water management system, including maintenance of storm water drainage facilities. The costs of providing services on a continuing basis are partially financed or recovered through user charges to Norfolk residents and commercial and industrial customers. Towing & Recovery Operations Fund: To improve neighborhood livability by providing reliable dispatching of towing services, storage of vehicles and recovery or disposal of vehicles.

Grants Fund: To account for the receipt and disbursement of revenue from such sources as federal and state agencies, adjacent municipalities, and City matching funds and to finance special programs that may have reporting periods that do not correspond with the City's fiscal year. Community Development Fund: To account for all entitlement funds received under Title I of the Housing and Community Development Act of 1974, commonly known as the Community Development Block Grant Program. National Maritime Center (Nauticus) Fund: To account for the operation of the National Maritime Center and Battleship Wisconsin tours. National Maritime Facilities Fund: To account for the operation of the National Maritime Facilities and Cruise Terminal. Cemeteries Fund: To account for the operation of the City of Norfolk’s cemeteries. Golf Fund: To account for the operation of the City of Norfolk’s golf courses. Public Amenities Fund: To promote cultural and entertainment activity in the downtown area. Land Acquisition Fund: To provide resources to assemble land that is in the public interest. Emergency Operations Center/911 Fund: To account for the operation of the City of Norfolk’s emergency operations center/911 (EOC 911.)

Nonmajor Governmental Funds (Con’t.) Tax Increment Financing Fund: To account for debt service requirements for the Section 108 Loan and property tax collections within the Broad Creek Renaissance Tax Increment Financing District.

Permanent Fund

The Permanent fund is used to report resources that are legally restricted to the extent that only earnings, not principal, may be used for purposes that support the reporting government’s programs. The City’s permanent fund (non-expendable trust) is used to account for the perpetual care and endowed care at certain City owned cemeteries.


Storm Community MaritimeWater Towing Grants Development Nauticus Facility Cemeteries

ASSETSCash and short term investments 1,070,482$ 1,029,420$ 17,316,450$ 449,804$ 373,518$ 1,670,563$ 487,233$ Investments - - 72,000 - - - - Receivables, net 1,798,220 14,511 528,084 1,064,427 230,738 273,930 135,790 Due from other funds 40 - 2,818,606 - - - - Due from other governments - - 9,067,782 - - - - Prepaid expenses - 15,500 - - - - - Deposit with contractors - - 3,084 - - - -

Total assets 2,868,742$ 1,059,431$ 29,806,006$ 1,514,231$ 604,256$ 1,944,493$ 623,023$

LIABILITIESVouchers payable 107,265$ 57,989$ 1,609,574$ 409,292$ 113,385$ 30,302$ 77,039$ Contract retainage - - 191,720 - - - - Accrued payroll 69,543 7,747 60,862 5,792 49,725 3,640 - Accrued expenses - - - - (693) - - Due to other funds 390 - 143,817 210,421 412,508 11,648 - Due to other governments - - 8,040,616 295,748 - - - Due to component units - - 23,705 - - - - Unearned revenue 219,642 - - 592,978 - - - Other liabilities - 38,948 25 - 33,443 - 108,031 Total liabilities 396,840 104,684 10,070,319 1,514,231 608,368 45,590 185,070

FUND BALANCESReserved for: Encumbrances 939,780 91,682 19,733,572 2,489,087 68,204 25,811 126,556 Perpetural care - - - - - - - Capital projects 36,715 - - - - - - Unreserved: Undesignated 1,495,407 863,065 2,115 (2,489,087) (72,316) 1,873,092 311,397 Total fund balances 2,471,902 954,747 19,735,687 - (4,112) 1,898,903 437,953 Total liabilities and fund balances 2,868,742$ 1,059,431$ 29,806,006$ 1,514,231$ 604,256$ 1,944,493$ 623,023$

Combining Balance Sheet - Nonmajor Governmental FundsJune 30, 2008


88


Exhibit F-1

PermanentFunds Nonmajor

Total Non- GovernmentalPublic Land EOC/ Tax Special Expendable Funds

Golf Amenities Acquisition 911 Increment Revenue trust

249,893$ 2,366,433$ 2,492,011$ -$ 4,054,792$ 31,560,599$ 6,156,476$ 37,717,075$ - - - - - 72,000 - 72,000 - 522,672 - 213,428 - 4,781,800 238,030 5,019,830 - - - 4,007,735 - 6,826,381 - 6,826,381 - - - - - 9,067,782 - 9,067,782 - - - - - 15,500 - 15,500 - - - - - 3,084 - 3,084

249,893$ 2,889,105$ 2,492,011$ 4,221,163$ 4,054,792$ 52,327,146$ 6,394,506$ 58,721,652$

17,820$ 3,000$ -$ 37,927$ -$ 2,463,593$ -$ 2,463,593$ - - - - - 191,720 - 191,720 - - - 89,565 - 286,874 - 286,874 - - - 6,652 - 5,959 - 5,959 - - - 939,012 - 1,717,796 - 1,717,796 - - - - - 8,336,364 - 8,336,364 - - - - - 23,705 - 23,705 - - - - - 812,620 - 812,620 - - - - - 180,447 - 180,447

17,820 3,000 - 1,073,156 - 14,019,078 - 14,019,078

19,951 26,000 19,020 846,734 - 24,386,397 - 24,386,397

- - - - - - 6,293,375 6,293,375 - - - - - 36,715 - 36,715

212,122 2,860,105 2,472,991 2,301,273 4,054,792 13,884,956 101,131 13,986,087 232,073 2,886,105 2,492,011 3,148,007 4,054,792 38,308,068 6,394,506 44,702,574 249,893$ 2,889,105$ 2,492,011$ 4,221,163$ 4,054,792$ 52,327,146$ 6,394,506$ 58,721,652$

June 30, 2008Combining Balance Sheet - Nonmajor Governmental Funds


89

City of Norfolk, Virginia

Storm Community MaritimeWater Towing Grants Development Nauticus Facility

REVENUESGeneral property taxes -$ -$ -$ -$ -$ -$ Other local taxes - - - - - - Fines and forfeitures - - 9,580 - - - Use of money and property 21,072 29,210 177,048 - - - Charges for services 10,722,810 1,861,125 1,489,439 758,822 1,517,255 1,188,629 Miscellaneous - 91,196 3,879,069 507,366 43,947 - Recovered costs - - 1,460 - - - Intergovernmental: Commonwealth of Virginia - - 17,868,679 - - - Federal government - - 10,852,347 5,209,749 368,878 -

Total revenue 10,743,882 1,981,531 34,277,622 6,475,937 1,930,080 1,188,629

EXPENDITURESGeneral government - - 3,095,511 - - - Judicial administration - - 1,316,062 - - - Public safety - - 5,637,518 - - - Public works 8,554,461 1,832,669 7,073,714 - - - Health and public assistance - - 26,664,875 2,273,417 - - Cultural and recreation - - 718,972 - 4,295,216 589,979 Community development - - - 4,202,520 - - Capital outlay - - - - - - Debt service Interest and other charges - - - - - 1,068,756 Total expenditures 8,554,461 1,832,669 44,506,652 6,475,937 4,295,216 1,658,735

Excess (deficiency) of revenue over (under) expenditures 2,189,421 148,862 (10,229,030) - (2,365,136) (470,106)

OTHER FINANCING SOURCES (USES)Transfers in - - 13,793,869 - 2,437,772 1,560,948 Transfers out (2,244,352) - - - - (11,648) Total other financing sources and uses (2,244,352) - 13,793,869 - 2,437,772 1,549,300

Net change in fund balances (54,931) 148,862 3,564,839 - 72,636 1,079,194

Fund balances--beginning 2,526,833 805,885 16,170,848 - (76,748) 819,709 Fund balances--ending 2,471,902$ 954,747$ 19,735,687$ -$ (4,112)$ 1,898,903$


Combining Statement of Revenues, Expenditures, and Changes in Fund BalanceNonmajor Governmental Funds


90

City of Norfolk, Virginia

Exhibit F-2

PermanentFunds Total

Total Non- NonmajorPublic Land EOC/ Tax Special Expendable Governmental

Cemeteries Golf Amenities Acquisition 911 Increment Revenue Trust Funds

-$ -$ -$ -$ -$ 2,550,300$ 2,550,300$ -$ 2,550,300$ - - 5,346,805 - 4,157,815 - 9,504,620 - 9,504,620 - - - - - - 9,580 - 9,580 - 105,178 - 1,747,377 - 8,665 2,088,550 291,213 2,379,763

1,262,815 1,240,386 - - 1,704 - 20,042,985 178,043 20,221,028 - 20,000 - - 1,459,284 - 6,000,862 - 6,000,862 - - - - - - 1,460 - 1,460

- - - - - - 17,868,679 - 17,868,679 - - - - 63,617 - 16,494,591 - 16,494,591

1,262,815 1,365,564 5,346,805 1,747,377 5,682,420 2,558,965 74,561,627 469,256 75,030,883

- - - - - - 3,095,511 - 3,095,511 - - - - - - 1,316,062 - 1,316,062 - - - - 6,777,823 - 12,415,341 - 12,415,341 - - - - - - 17,460,844 - 17,460,844 - - - - - - 28,938,292 - 28,938,292

2,136,259 1,442,228 682,430 - - - 9,865,084 - 9,865,084 - - - - - - 4,202,520 - 4,202,520 - - - 2,580,980 - - 2,580,980 - 2,580,980

- - - - - 737,686 1,806,442 - 1,806,442 2,136,259 1,442,228 682,430 2,580,980 6,777,823 737,686 81,681,076 - 81,681,076

(873,444) (76,664) 4,664,375 (833,603) (1,095,403) 1,821,279 (7,119,449) 469,256 (6,650,193)

1,054,736 - - - 1,627,767 - 20,475,092 - 20,475,092

- (400,000) (9,266,750) (1,228,000) - - (13,150,750) (305,580) (13,456,330) 1,054,736 (400,000) (9,266,750) (1,228,000) 1,627,767 - 7,324,342 (305,580) 7,018,762

181,292 (476,664) (4,602,375) (2,061,603) 532,364 1,821,279 204,893 163,676 368,569

256,661 708,737 7,488,480 4,553,614 2,615,643 2,233,513 38,103,175 6,230,830 44,334,005 437,953$ 232,073$ 2,886,105$ 2,492,011$ 3,148,007$ 4,054,792$ 38,308,068$ 6,394,506$ 44,702,574$

Combining Statement of Revenues, Expenditures, and Changes in Fund BalanceNonmajor Governmental Funds



91

Agency Funds

Agency funds are used to account for assets held by the City as an agent for individuals, private organizations, other governments and/or other funds: Agency Fund – Other; to account for other monies held for private organizations and other funds. Agency Fund – Commonwealth of Virginia; to account for monies on deposit with the City Treasurer held for the Treasurer of the Commonwealth of Virginia.

CITY OF NORFOLK, VIRGINIA Exhibit G-1

Commonwealthof

Other Virginia TotalASSETSCash and short term investments 9,239,734$ 18,114$ 9,257,848$ Receivables:

Accounts, net of allowancefor uncollectible accounts 1,045 - 1,045

Other 523,305 - 523,305 Total assets 9,764,084$ 18,114$ 9,782,198$

LIABILITIESVouchers payable 26,215$ -$ 26,215$ Due to other agencies 9,737,869 18,114 9,755,983

Total liabilities 9,764,084$ 18,114$ 9,782,198$

Combining Balance Sheet - Agency FundsJune 30, 2008

92

CITY OF NORFOLK, VIRGINIA Exhibit G-2

Balance Balance

July, 1,2007 Additions Deductions June, 30,2008ASSETSCash and short term investments 4,996,411$ 18,922,716$ 14,679,393$ 9,239,734$ Accounts receivable 784 1,521 1,260 1,045 Other receivables - 628,552 105,247 523,305

Total assets 4,997,195$ 19,552,789$ 14,785,900$ 9,764,084$

LIABILITIESVouchers payable 176,469$ 2,643,609$ 2,793,863$ 26,215$ Due to other agencies 4,820,726 23,448,643 18,531,500 9,737,869

Total liabilities 4,997,195$ 26,092,252$ 21,325,363$ 9,764,084$

Balance BalanceJuly, 1,2007 Additions Deductions June, 30,2008

ASSETSCash and short term investments -$ 18,088,367$ 18,070,253$ 18,114$

Total assets -$ 18,088,367$ 18,070,253$ 18,114$

LIABILITIESDue to the Commonwealth of Virginia -$ 18,088,367$ 18,070,253$ 18,114$

Total liabilities -$ 18,088,367$ 18,070,253$ 18,114$

Balance Balance

July, 1,2007 Additions Deductions June, 30,2008ASSETSCash and short term investments 4,996,411$ 37,011,083$ 32,749,646$ 9,257,848$ Accounts receivable 784 1,521 1,260 1,045

Other - 628,552 105,247 523,305 Total assets 4,997,195$ 37,641,156$ 32,856,153$ 9,782,198$

LIABILITIESVouchers payable 176,469$ 2,643,609$ 2,793,863$ 26,215$ Due to other agencies 4,820,726 41,537,010 36,601,753 9,755,983

Total liabilities 4,997,195$ 44,180,619$ 39,395,616$ 9,782,198$

Total

Combining Statement of Changes in Assets and LiabilitiesAgency Funds

Other

Commonwealth of Virginia


93

Internal Service Funds

Internal service funds are used to account for the financing of goods and services provided by one department or agency to other departments or agencies of the government and to other government units, on a cost reimbursement basis. The individual internal service funds are: Storehouse Fund; to acquire and issue to the operating departments materials, parts, and supplies which are used in the same form as purchased. Fleet Management Fund; to provide the operating departments with maintenance, repair and service for the City fleet of vehicles, heavy equipment and miscellaneous machinery.

CITY OF NORFOLK, VIRGINIA Exhibit H-1

Fleet Storehouse Management Total

ASSETSCurrent assets: Cash and short term investments 44$ 4,394,952$ 4,394,996$ Receivables, net 3,353 412,747 416,100 Due from other funds - 88,400 88,400 Inventories 1,870,184 389,654 2,259,838 Total current assets 1,873,581 5,285,753 7,159,334 Noncurrent assets: Capital assets: Land - 415,000 415,000 Buildings and equipment, net 34,281 5,377,548 5,411,829 Total noncurrent assets 34,281 5,792,548 5,826,829 Total assets 1,907,862 11,078,301 12,986,163

LIABILITIESCurrent liabilities: Vouchers payable 48,277 515,769 564,046 Due to other funds 69,599 206,236 275,835 Compensated absences 34,225 203,424 237,649 Accrued payroll 9,581 61,320 70,901 Obligations for employees' retirement 42,552 265,608 308,160 Total current liabilities 204,234 1,252,357 1,456,591 Noncurrent liabilities: Compensated absences 8,556 87,182 95,738 Other long-term liabilities - 7,703 7,703 Total noncurrent liabilities 8,556 94,885 103,441 Total liabilities 212,790 1,347,242 1,560,032

NET ASSETS Invested in capital assets, net of related debt 34,281 5,784,845 5,819,126 Unrestricted 1,660,791 3,946,214 5,607,005 Total net assets 1,695,072$ 9,731,059$ 11,426,131$

Combining Statement of Net Assets - Internal Service FundsJune 30, 2008

94



OPERATING REVENUES; Charges for services 3,662,192$ 12,373,868$ 16,036,060$ Miscellaneous - 115,675 115,675 Total operating revenues 3,662,192 12,489,543 16,151,735

OPERATING EXPENSES; Personal services 470,523 3,016,359 3,486,882 Cost of goods sold 2,988,656 7,106,234 10,094,890 Plant operations 14,661 237,208 251,869 Depreciation 4,311 298,195 302,506 Retirement and OPEB contributions 42,552 265,608 308,160 Provision for bad debts - 15,672 15,672 Other 44,238 1,222,904 1,267,142

Total operating expenses 3,564,941 12,162,180 15,727,121 Operating income 97,251 327,363 424,614 NONOPERATING REVENUE (EXPENSES) Interest and investment income 2,014 157,083 159,097 Total nonoperating revenue 2,014 157,083 159,097 Net income before transfers 99,265 484,446 583,711 Other financing sources (uses):Transfers out - (35,000) (35,000)

Change in net assets 99,265 449,446 548,711

Net assets--beginning 1,595,807 9,281,613 10,877,420 Net assets--ending 1,695,072$ 9,731,059$ 11,426,131$

Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets - Internal Service Funds


95



CASH FLOWS FROM OPERATING ACTIVITIES:Receipts from customers 3,660,553$ 12,217,599$ 15,878,152$ Payments to suppliers (3,064,951) (7,087,291) (10,152,242) Payments to employees (522,219) (3,347,824) (3,870,043) Other receipts (payments) (44,238) (1,119,004) (1,163,242) Net cash provided by operating activities 29,145 663,480 692,625

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Internal activity (25,118) 5,913 (19,205)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition of capital assets (16,264) (272,958) (289,222) Principal paid on capital debt - (2,510) (2,510) Net cash used by capital and related financing activities (16,264) (275,468) (291,732)

CASH FLOWS FROM INVESTING ACTIVITIES: Interest and dividends 2,014 157,083 159,097 Net cash provided by investing activities 2,014 157,083 159,097

Net increase in cash and short term investments (10,223) 551,008 540,785

Cash and short term investments - beginning of the year 10,267 3,843,944 3,854,211

Cash and short term investments - end of the year 44$ 4,394,952$ 4,394,996$

Reconciliation of Operating Income to Net CashProvided by Operating ActivitiesOperating income 97,251$ 327,363$ 424,614$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation expense 4,311 298,195 302,506 Provision for bad debts - 15,672 15,672 Loss on disposal of assets - 103,900 103,900 Change in assets and liabilities: Receivables, net (1,639) (271,944) (273,583) Inventories (13,469) 15,775 2,306 Vouchers payable (48,165) 240,376 192,211 Accrued payroll 2,883 18,241 21,124 Other liabilities (12,027) (84,098) (96,125) Net cash provided by operating activities 29,145$ 663,480$ 692,625$

Noncash investing, capital, and financing activities:Loss on sale or disposal of capital assets -$ (103,900)$ (103,900)$

Combining Statement of Cash Flows - Internal Service FundsFor the Year Ended June 30, 2008

96

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


Federal Granting Agency/Recipient CFDA FederalRecipient State Agency/Grant program Number Expenditures

Department of Agriculture: Direct Payments:

USDA Summer Food Service Program (SFSP) 10.559 256,863$ Food Stamp Program - Administration 10.561 4,195,728

Pass-through Payments:State Department of Agriculture:

National School Breakfast Program 10.553 2,340,160 National School Lunch Program 10.555 7,359,544 National School Lunch Program (Commodities) 10.556 1,178,250

Department of Housing and Urban Development:Direct Payments:

Community Development Block Grant 14.218 5,209,749 ESG Administration 14.231 378 For Kids, Inc. Haven Family Services 14.231 35,429 Ecumenical Family Shelter 14.231 20,252 St Columbia 14.231 27,410 The Planning Council 14.231 35,195 YWCA Women in Crisis 14.231 26,826 Special Needs Assistance (SPC Support) 14.235 71,531 Shelter Plus Care Program 14.238 363,836 CHDA Investment 14.239 150,972 Home Administration 14.239 204,863 Home Investment Partnership 14.239 411,119 NRHA - Homebuyer Assistance 14.239 1,178,814 Equity Secure - Rehabilitation 14.239 791,885

Department of Justice:Direct Payments:

Community Oriented Policing Services:Bulletproof Vests Grant 16.607 21,865 Bureau of Justice Grant 16.710 59,434 COPS 16.710 545,910

Pass-Through Payments:Department of Criminal Justice Services:

Juvenile Accountability Incentive 16.523 30,876 VSTOP Prosecutorial Project 16.540 32,084 Recruit and Retain Criminal Jus Prof 16.579 12,892 Crime and Delinquency Prevention 16.579 51,733 GOSAP - Prepare Until Success Happens 16.579 3,602 Project Safe Neighborhoods 16.609 39,440

Department of Transportation:Pass-Through Payments:

Selective Enforcement 20.511 21,479 Enviornmental Protection Agency:

Pass-Through Payments:Virginia Resources Authority - Revolving Loan 66.458 7,359,833

Department of Homeland SecurityDirect Payments:

FEMA - Flood Mitigation 97.029 280,094 FEMA - Assistance to Firefighters 97.044 447,832 Port Security Grant 97.056 248,340

Pass-Through Payments:FEMA Flood Mitigation 97.029 356,483 Disaster Grants - Public Assistance 97.036 63,617 Terrorism Prevention 97.074 36,723 Law Enforcement Terrorism Prevention 97.074 8,272

continued

For the Year Ended June 30, 2008 Schedule of Expenditures of Federal Awards Schedule I

97


For the Year Ended June 30, 2008 Schedule of Expenditures of Federal Awards Schedule I

Department of Education:Direct Payments:

Department of Defense 84.010 404,818$ School Assistance in Federally Affected Areas 84.041 4,391,958

Pass-Through Payments:Department of Education:

Education Consolidation and Improvement Act of 1981:Adult Education 84.002 355,447 Title I:

Educationally Deprived Children- Programs Operated by LEA's 84.010 17,806,934 School Improvement Grant 84.010 22,189

Program for Neglected Children 84.013 14,249 Chapter I:

Evenstart Program 84.213 441,920 Title VI:

Negligent Delinquent Children 84.010 244,372 Elementary and Secondary Education Act (ESEA):Title VI-B:

Assistance to States for Education of Handicapped Children:Transition Incentive Grant 84.027 2,361 Special Education Flow Thru (Federal) 84.027 7,045,493 Handicapped Preschool Incentive Grant 84.173 238,184

Title IV-B:Vocational Education:

Consumer and Homemaking 84.048 1,033,293 Substitute Teachers 84.048 230

9th Grade Transition 84.298 26,801 Special Projects:

Drug Free Act 84.186 244,008 ESEA, Chapter II 84.298 107,013

McKinney Homeless Assistance 84.196 21,981 Enhancing Education with Tech Phase II 84.318 247,938 Enhancing Education with Tech 84.318 257,868 21st Century Community Learning Center 84.287 9,327 Comm Central Phase II 84.287 40,206 Reading First 84.357 871,735 Limited English 84.365 53,797 Teacher & Principal Training 84.367 1,953,042

Enhanced Reading Opportunity 84.215 974,518 Dept of Mental Health, Mental Retardation and Substance Abuse

Mental Retardation Early Intervention 84.181 320,801 Department of the Navy:

Direct Payments:USS Wisconsin Grant 12.700 368,878

Department of Health and Human Services:Direct Payments:

HIV/AIDS Grant 93.914 5,464,997 NIC Pool Funds 99.000 40,960

Pass-Through Payments:Projects for Assistance in Transition to Homeless (PATH) 93.150 84,481 Mental Health VASIP / COSIG 93.243 1,875 Youth & Family Services Grant 93.556 626,747 Temporary Assistance to Needy Families 93.558 2,845,307 Refugee and Entrant Assistance State Administered Prog 93.566 17,988 Local-Income Home Energy Assistance 93.568 84,260 Payments to States for Child Care Assistance 93.575 4,137,775 Child Development Care 93.596 3,051,661 Independent Living Program - Education and Training 93.599 37,961 Family Preservation 93.645 24,625 Foster Care - Title IV - E 93.658 2,728,057 Adoptive Assistance 93.659 598,079 Social Services Block Grant 93.667 4,313,873 Independent Living Initiative Program 93.674 66,265 FAMIS Outreach Grants 93.767 151,504 Medical Assistance Program - Administrative 93.778 3,054,148 Mental Health Federal Block Grant 93.958 144,458 Substance Abuse Federal Block Grant 93.959 1,893,002

Total 100,346,698$

98

1. General

2. Basis of Accounting

3. Relationship to the Basic Financial StatementsFederal award revenue is reported in the City's basic financial statements as follows:

Governmental fund 25,933,981$ Non-governmental funds 16,494,591 Total revenues from federal government 42,428,572

Component Unit - School Board Total Federal Grants Awarded 48,659,166 Direct Payments:Navy Junior ROTC 259,064 Erate - Universal Service Funds 376,295 Medicaid 345,498 Total - Norfolk Public Schools 47,678,309

Component Unit - Community Services Board 2,879,984 Enterprise - VRA Loan - WasteWater Fund 7,359,833 Total federal financial assistance reported in basic financial statements 100,346,698$

Reconciliation to Exhibit A-3 Revenues from federal government 42,428,572$ Sheriff - Social Security 22,400$ Hurricane Isabelle disaster relief recovery 13,325 Total revenues from federal government 42,464,297

Revenues from Commonwealth of Virginia 114,397,465 Total intergovernmental revenue 156,861,762$

4. Relationship to Federal Financial Reports

Amounts reported in the accompanying schedule agree substantially with the amounts reported in the federal financialreports except that certain federal financial reports are prepared on the cash basis of accounting and the schedule ofexpenditures of federal awards is prepared on the basis of accounting described in Note 2 above.

CITY OF NORFOLK, VIRGINIANOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


The accompanying schedule of expenditures of federal awards presents the activity of all federal awards of the City.The City of Norfolk single audit reporting entity includes the primary government and the School Board andCommunity Services Board component units.

Federal awards not received through direct programs 100% are passed through the departments and agencies of theCommonwealth of Virginia.

The accompanying schedule of expenditures of federal awards is presented using the modified accrual basis ofaccounting. Expenditures are recorded when the liability is incurred or measurable. The related revenue is reported netof unexpended amounts returned to grantors.

99

5. SubrecipientsFederal funds passed through to subrecipients for the year ended June 30, 2008 were as follows:

Federal Granting Agency / Grant Program / Subrecipient Amount

Department of Housing and Urban DevelopmentCommunity Development Block Grant:AIDS Care Center for Education and Support Services 56,691 St Columbia Ecumenical Ministries 50,569 Foodbank of Southeastern Virginia 35,730 The Planning Council 58,930 The Salvation Army 130,000 Residential Options 4,175 Park Place School 29,596 YMCA of South Hampton Roads 42,122 William A Hunton YMCA 37,000 HomeNet 75,000 Tidewater AIDS Community Task Force 33,900 Community Mediation Center 5,996 Excellence Girls Club 21,074 Joy Ministries Evangelistic Association 20,000 National Institute for Learning Development 19,000 International Black Women's Congress 23,981 Urban League of Hampton Roads 25,000 Child and Family Services of Eastern Virginia 50,000 Assertive Community Taskforce Team 46,583 The STOP Organization 181,004 Barrett Haven 17,780 NRHA 2,554,290 Total Community Development Block Grant 3,518,421.05

NRHA - Homebuyer AssistanceNRHA 950,600 Total NRHA - Homebuyer Assistance 950,600.00

Equity Secure - RehabiliationNRHA 106,847 Total Equity Secure - Rehabiliation 106,847.00

Home Program AdministrationNRHA 204,863 Total Home Program Administration 204,863.00

CHDA InvestmentBeacon Light Community Housing Development Organization 19,556 NRHA 56,661 Total CHDA Investment 76,217

Total Department of Housing and Urban Development 4,856,948$

Department of Homeland SecurityPort Security GrantCity of Portsmouth 36,056 Total Port Security Grant 36,056

Total Department of Homeland Security 36,056$

Department of Health and Human ServicesTemporary Assistance for Needy FamiliesGoodwill 143,751 KRA 2,090,758 Total Temporary Assistance for Needy Families 2,234,509

Foster Care Title IV-ENorfolk State University 387,971 Total Foster Care - Title IV-E 387,971

Payments to States for Child Care AssistanceThe Planning Council 542,206 Total Payments to States for Child Care Assistance 542,206

HIV/AIDS Grant EVMS - Center for Comprehenive Care Of Immune Deficiency 1,089,614 Community Psycological Group 116,962 ACCESS 588,158 Health and Home Support Services 190,581 Tidewater AIDS Community Task Force 789,822 Virginia Beach Department of Health 71,487 Williamsburg AIDS Network 30,092 Total HIV/AIDS Grant 2,876,716

Total Department of Health and Human Services 6,041,401$

Total Payment to Sub-Recipients 10,934,405$

100

SCHEDULE OF REVENUES AND EXPENDITURES

– BUDGET AND ACTUAL –

~Special Revenue Funds~

~Internal Service Funds~

~Capital Projects Fund~

CITY OF NORFOLK, VIRGINIA Exhibit J-1

Positive (Negative)

Budget Actual VarianceRevenues: Use of money and property -$ 29,210$ 29,210$ Charges for services 973,260 1,861,125 887,865 Miscellaneous 768,240 91,196 (677,044) Recovered costs 206,000 - (206,000) Total revenue 1,947,500$ 1,981,531$ 34,031$

Expenditures: Towing recovery 1,797,500$ 1,867,333$ (69,833)$ Transfer out 150,000 - 150,000 Total expenditures 1,947,500$ 1,867,333$ 80,167$

Schedule of Revenues and Expenditures - Budget and ActualTowing Recovery Operation's FundFor the Year Ended June 30, 2008

101


Positive (Negative)

Budget Actual VarianceRevenues: Use of money and property 10,000$ 21,072$ 11,072$ Charges for services 10,506,100 10,722,810 216,710 Total revenue 10,516,100$ 10,743,882$ 227,782$

Expenditures: Storm water 6,956,398$ 8,451,916$ (1,495,518)$ Transfer out 3,559,702 2,244,352 1,315,350 Total expenditures 10,516,100$ 10,696,268$ (180,168)$

Schedule of Revenues and Expenditures - Budget and ActualStorm Water Utility Fund


102


Positive (Negative)

Budget Actual VarianceRevenues: Charges for services 2,022,600$ 1,428,242$ (594,358)$ Use of money and property 118,500 89,013 (29,487) Intergovernmental - Federal 122,328 368,878 246,550 Miscellaneous 169,000 43,947 (125,053) Transfer in 2,437,772 2,437,772 - Total revenue 4,870,200$ 4,367,852$ (502,348)$

Expenditures: Operations 4,870,200$ 4,314,687$ 555,513$

Schedule of Revenues and Expenditures - Budget and ActualNauticus Fund


103


Positive (Negative)

Budget Actual VarianceRevenues: Charges for services 1,150,969$ 1,188,629$ 37,660$ Rollover from last year 302,500 302,500 - Transfer in 1,544,531 1,560,948 16,417 Total revenue 2,998,000$ 3,052,077$ 54,077$

Expenditures: Operations 826,003$ 562,500$ 263,503$ Debt service 2,171,997 1,068,756 1,103,241 Transfer out - 11,648 (11,648) Total expenditures 2,998,000$ 1,642,904$ 1,355,096$

Schedule of Revenues and Expenditures - Budget and ActualMaritime Facility Fund


104


Positive (Negative)

Budget Actual VarianceRevenues: Charges for services 1,483,500$ 1,240,386$ (243,114)$ Rollover from last year 562,045 562,045 - Miscellaneous - 125,178 125,178 Total revenue 2,045,545$ 1,927,609$ (117,936)$

Expenditures: Operations 1,645,545$ 1,462,179$ 183,366$ Transfer out 400,000 400,000 - Total expenditures 2,045,545$ 1,862,179$ 183,366$

Schedule of Revenues and Expenditures - Budget and ActualGolf Fund


105


Positive (Negative)

Budget Actual VarianceRevenues: Other local taxes 4,157,735$ 4,157,815$ 80$ Fees 1,000 1,704 704 Recovered cost 1,223,085 1,459,284 236,199 Intergovernmental - federal 63,000 63,617 617 Transfers in 1,627,767 1,627,767 - Rollover from Last Year 435,251 435,251 - Total revenue 7,507,838$ 7,745,438$ 237,600$


Schedule of Revenues and Expenditures - Budget and ActualEmergency Operations Fund (EOC 911)


106


Positive (Negative)

Budget Actual VarianceRevenues: Charges for services 1,295,944$ 1,262,815$ (33,129)$ Transfer in 1,049,156 1,054,736 5,580 Total revenue 2,345,100$ 2,317,551$ (27,549)$



Schedule of Revenues and Expenditures - Budget and ActualCemeteries Fund

107


Positive (Negative)

Budget Actual VarianceRevenues: Taxes-Hotel & Restaurant 5,357,400$ 5,346,805$ (10,595)$ Rollover from last year 7,000,000 7,000,000 - Total revenue 12,357,400$ 12,346,805$ (10,595)$

Expenditures:Transfer out 10,877,447$ 9,266,750$ 1,610,697$ Challenge Grants 500,000 599,000 (99,000) All purpose 979,953 - 979,953 Total expenditures 12,357,400$ 9,865,750$ 2,491,650$

Schedule of Revenues and Expenditures - Budget and ActualPublic Amenities Fund


108


Positive (Negative)

Budget Actual VarianceRevenues: Taxes-real property 2,550,300$ 2,550,300$ -$ Use of money and property 5,000 8,665 3,665 Total revenue 2,555,300$ 2,558,965$ 3,665$

Expenditures: Debt service 2,555,300$ 737,686$ 1,817,614$ Total expenditures 2,555,300$ 737,686$ 1,817,614$

Schedule of Revenues and Expenditures - Budget and ActualTax Increment Financing Fund


109

CITY OF NORFOLK, VA Exhibit J-2

Positive (Negative)

Budget Actual VarianceRevenues: Use of money and property 95,000$ 157,083 62,083$ Charges for services 11,773,000 12,373,868 600,868 Other-miscellaneous 70,000 115,675 45,675 Total revenue 11,938,000$ 12,646,626$ 708,626$

Expenditures: Fleet 11,938,000$ 12,697,430$ (759,430)$

Schedule of Revenues and Expenditures - Budget and ActualFleet Internal Service Fund


110

CITY OF NORFOLK, VA Exhibit J-2

Positive (Negative)

Budget Actual * VarianceRevenues: Charges for services 587,700$ 673,536$ 85,836$ Use of money and property 2,000 2,014 14

589,700$ 675,550$ 85,850$

Expenditures: Storehouse 589,700$ 546,340$ 43,360$

*The difference in revenue and expenditures per this schedule compared to Exhibit H-2 represents cost of goods sold which is not included in the operating budget.

Schedule of Revenues and Expenditures - Budget and ActualStorehouse Internal Service FundFor the Year Ended June 30, 2008

111

Exhibit J-3

Capital Projects Project Description Budget Prior Years * Current Total Available

Community DevelopmentNeighborhood Project Development 13,160,000 12,759,664 370,976 13,130,640 29,360 Neighborhood Conservation/Revitalization 54,971,000 34,813,895 6,356,702 41,170,597 13,800,403 Broad Creek Renaissance 11,793,000 7,435,491 2,672,107 10,107,598 1,685,402 Neighborhood Streets Improvements 5,293,000 4,530,362 2,244 4,532,606 760,394 Neighborhood Commercial Improvements 11,602,000 9,565,485 218,921 9,784,406 1,817,594 Other 876,000 404,999 200,007 605,006 270,994 Total Community Development 97,695,000 69,509,896 9,820,957 79,330,853 18,364,147

Cultural FacilitiesAttucks Theatre Renovations 2,485,000 2,429,040 2,260 2,431,300 53,700 Scope Chiller Replacements 2,760,000 2,758,381 1,013 2,759,394 606 Scope Improvements 11,940,000 8,851,751 844,884 9,696,635 2,243,365 Chrysler Museum Improvements 5,545,000 3,328,098 1,010,308 4,338,406 1,206,594 Civic Building Improvements 1,591,000 1,189,266 111,401 1,300,667 290,333 Conference Center 61,915,000 10,473,719 2,714,627 13,188,346 48,726,654 Harrison Opera House Improvements 405,000 394,515 7,994 402,509 2,491 Macarthur Memorial Improvements 697,000 530,169 4,394 534,563 162,437 Wells Theater Improvements 225,000 224,868 121 224,989 11 Nauticus/Martime Center Improvements 2,095,000 1,000,000 975,959 1,975,959 119,041 USS Wisconsin Improvements 2,545,099 - 678,946 678,946 1,866,153 Other 4,374,500 203,387 1,930,322 2,133,709 2,240,791 Total Cultural Facilities 96,577,599 31,383,194 8,282,229 39,665,423 56,912,176

Economic DevelopmentDisposition/Upgrade City Property 32,402,198 17,697,880 10,600,524 28,298,404 4,103,794 Nauticus Cruise Development 41,095,870 40,064,221 248,704 40,312,925 782,945 Huntersville Redevelopment 1,000,000 6,900 44,132 51,032 948,968 Kroc Center Development 4,040,000 - 2,677,500 2,677,500 1,362,500 Wachovia Center Development 675,000 - 22,196 22,196 652,804 Other 4,174,237 991,721 117,122 1,108,843 3,065,394 Total Economic Development 83,387,305 58,760,722 13,710,178 72,470,900 10,916,405

General/OtherCampostella Landfill Closure 900,000 752,073 - 752,073 147,927 Beach Erosion Control 17,793,500 13,503,978 598,431 14,102,409 3,691,091 Transfer to Debt Service 1,741,232 1,741,232 619,423 2,360,655 (619,423) IFMS - Financial System Implementation 2,898,904 2,837,295 670 2,837,965 60,939 Waterway Dredging Projects 4,360,000 2,100,918 486,898 2,587,816 1,772,184 Other 4,922,700 2,726,523 17,933,565 20,660,088 (15,737,388) Total General/Other 32,616,336 23,662,019 19,638,987 43,301,006 (10,684,670)

Public Buildings and FacilitiesFire Station Emergency Generation Program 1,384,622 1,263,057 - 1,263,057 121,565 Infrastructure Improvements 2,786,500 2,407,892 97,626 2,505,518 280,982 Public Health Center - Bio Med Facility 2,233,537 2,371,579 - 2,371,579 (138,042) Detention Home Project 7,428,681 7,424,110 - 7,424,110 4,571 Annual Roof Maintenance 4,201,000 2,690,202 1,276,993 3,967,195 233,805 Library Facilities - Anchor Branch 10,476,238 6,559,895 3,534,025 10,093,920 382,318 Library Facilities - Kirn Main Branch 7,228,000 - 7,215,000 7,215,000 13,000 Police Precinct Replacement 11,059,500 9,165,419 286,797 9,452,216 1,607,284 Courts Renovations 38,575,000 791,368 823,238 1,614,606 36,960,394 Jail Renovations 2,063,200 1,830,835 - 1,830,835 232,365 Seldan Arcade Renovations 9,631,883 7,090,802 77,865 7,168,667 2,463,216 City Hall Building Renovations 4,090,000 2,259,424 355,830 2,615,254 1,474,746 Chrysler Museum Renovations 1,075,000 1,075,000 - 1,075,000 - Tow Yard Acquisition 1,300,000 - - - 1,300,000 Fire Facilities Replacement/Improvements 793,000 270,908 53,093 324,001 468,999 Police Training Facilities 5,106,000 4,624,373 4,624,373 481,627 Other 4,010,955 1,079,699 369,095 1,448,794 2,562,161 Total Public Buildings & Facilities 113,443,116 46,280,190 18,713,935 64,994,125 48,448,991

Parks/Recreational FacilitiesZoo Master Plan 20,605,000 9,108,422 1,152,913 10,261,335 10,343,665 Titustown Recreation Center Improvements 3,550,000 3,000,000 208,961 3,208,961 341,039 Botanical Gardens 2,014,000 1,980,075 - 1,980,075 33,925 Existing Recreation Center Improvements 7,977,850 4,216,610 566,217 4,782,827 3,195,023 Norview Recreation Center 7,539,500 210,847 5,954,148 6,164,995 1,374,505 Lambert's Point Golf Course 9,588,300 9,187,758 - 9,187,758 400,542 Lambert's Point Community & Recreational Center 7,667,000 283,817 356,018 639,835 7,027,165 Harbor Park Improvements 800,000 698,567 1,433 700,000 100,000 Athletic Field Renovations 1,484,000 850,639 132,779 983,418 500,582 Norfolk Fitness & Wellness Center Renovations 673,670 637,950 24,038 661,988 11,682 Broadcreek & Westside Neighborhood Parks 2,616,000 885,571 580,988 1,466,559 1,149,441 Town Point Park Improvements 7,575,000 382,157 748,245 1,130,402 6,444,598 Martin Luther King Park 123,000 116,020 - 116,020 6,980 Waterside Waterfront Renovations 587,500 - 46,100 46,100 541,400 Other 7,172,550 288,641 657,990 946,631 6,225,919 Total Parks/Recreational Faculties 79,973,370 31,847,074 10,429,830 42,276,904 37,696,466

Expenditures

CITY OF NORFOLK, VIRGINIACapital Improvement Program

Schedule of Expenditures - Budget and ActualFrom Inception and for the Year Ended June 30, 2008

112

Exhibit J-3

Capital Projects Project Description Budget Prior Years * Current Total Available

Expenditures

CITY OF NORFOLK, VIRGINIACapital Improvement Program

Schedule of Expenditures - Budget and ActualFrom Inception and for the Year Ended June 30, 2008

SchoolsNorfolk Public School Allocation 1,596,813 1,596,813 - 1,596,813 - Project Design Phase 5,757,830 5,757,830 - 5,757,830 - Blair Middle School Replacement 7,071,710 6,601,482 - 6,601,482 470,228 Norfolk Public School Construction 5,698,631 3,009,431 165,594 3,175,025 2,523,606 Norfolk Public School Initiative 5,265,000 3,552,327 951,801 4,504,128 760,872 Norview Construction 26,679,400 21,987,312 1,298,980 23,286,292 3,393,108 Southside Middle School 2,250,000 - - - 2,250,000 High School Athletic Field 1,500,000 1,421,734 - 1,421,734 78,266 Coleman Place Elementary Replacement 21,567,641 9,636,493 2,968,443 12,604,936 8,962,705 Crossroads Elementary Replacement 4,648,525 - - - 4,648,525 Other 6,424,324 604,817 2,469,446 3,074,263 3,350,061 Total Schools 88,459,874 54,168,239 7,854,264 62,022,503 26,437,371

Storm WaterStorm Water Quality Improvements 7,305,000 3,826,197 500,493 4,326,690 2,978,310 Storm Water Facility Improvements 1,650,000 644,522 178,583 823,105 826,895 Old Dominion University Master Plan 514,000 503,766 - 503,766 10,234 Drain Line Clean & Slip lining 2,812,267 2,734,321 - 2,734,321 77,946 Neighborhood Flood Reduction 4,416,000 1,555,534 1,221,222 2,776,756 1,639,244 Bulkheading Master Project 3,000,000 1,725,895 1,208,302 2,934,197 65,803 Pump Station Improvements 100,000 100,000 - 100,000 - Other 500,000 2,000 2,000 4,000 496,000 Total Storm Water 20,297,267 11,092,235 3,110,600 14,202,835 6,094,432

TransportationOld Dominion University Master Plan 8,528,600 8,411,142 136,722 8,547,864 (19,264) VDOT Urban Support Program 9,760,702 7,322,943 162,416 7,485,359 2,275,343 Bridge Maintenance & Repair Program 16,594,351 6,894,101 5,595,307 12,489,408 4,104,943 Signal & Intersection Enhancements 8,915,000 5,233,276 1,834,656 7,067,932 1,847,068 Citywide Soundwall Program 8,951,260 2,993,433 317,473 3,310,906 5,640,354 Neighborhood Streets Improvements 38,450,666 12,648,262 8,176,566 20,824,828 17,625,838 Atlantic City Development 12,739,200 6,338,069 1,643,780 7,981,849 4,757,351 Citywide Boat Ramp Improvements 1,944,250 841,577 745,542 1,587,119 357,131 Other 9,800,000 1,309,859 1,252,433 2,562,292 7,237,708 Total Transportation 115,684,029 51,992,662 19,864,895 71,857,557 43,826,472

Total Capital Projects 728,133,896 378,696,231 111,425,875 490,122,106 238,011,790

* Note: Some prior year amounts were reclassed to reflect proper classification.

113

APPENDIX B

FORM OF LEGAL OPINION OF BOND COUNSEL

Appendix B

Form of Bond Counsel Opinion

Active_8984609_1_Norfolk 2009 GO - Bond Counsel Opinion.DOC

Set forth below is the proposed form of the opinion of McGuireWoods LLP, Bond Counsel. It is

preliminary and subject to change prior to the delivery of the Bonds.

[Letterhead of McGuireWoods LLP]

May ___, 2009 Mayor and Council of the City of Norfolk, Virginia Norfolk, Virginia

City of Norfolk, Virginia $___________ General Obligation Capital Improvement Bonds, Series 2009A

$_________ General Obligation Refunding Bonds, Series 2009B and $__________ General Obligation Bond Anticipation Note, Series 2009C

Ladies and Gentlemen:

We have served as Bond Counsel in connection with the issuance and sale by the City of Norfolk, Virginia (the "City") of its $__________ General Obligation Capital Improvement Bonds, Series 2009A (the "2009A Bonds"), $____________ General Obligation Refunding Bonds, Series 2009B (the "2009B Bonds") and $_________ General Obligation Bond Anticipation Note, Series 2009C, (the "2009C Note" and, together wth the 2009A Bonds and 2009B Bonds, the "Bonds"), each dated the date of delivery.

In connection with this opinion, we have examined the Constitution of Virginia and the applicable laws of both the United States and the Commonwealth of Virginia, including without limitation the Internal Revenue Code of 1986, as amended (the "Code"), and the Public Finance Act of 1991, Chapter 26, Title 15.2, Code of Virginia of 1950, as amended, and copies of proceedings and other documents relating to the issuance and sale of the Bonds by the City as we have deemed necessary to render the opinions contained herein.

As to questions of fact material to our opinions, we have relied upon (a) representations of the City, including, without limitation, representations as to the use of proceeds of the Bonds,

Mayor and Council of the City of Norfolk, Virginia May ___, 2009 Page 2

(b) certifications of public officials furnished to us, and (c) certifications and representations contained in certificates of the City and others delivered at closing, without undertaking to verify them by independent investigation. In addition, without undertaking to verify the same by independent investigation, we have relied on computations provided to us by The Arbitrage Group, Inc., the mathematical accuracy of which was verified by them, relating to the yield on investments in the escrow fund established with a portion of the proceeds of the 2009B Bonds and the yield on the 2009B Bonds. We have assumed that all signatures on documents, certificates, and instruments examined by us are genuine, all documents, certificates, and instruments submitted to us as originals are authentic, and all documents, certificates, and instruments submitted to us as copies conform to the originals. In addition, we have assumed that all documents, certificates, and instruments relating to this financing have been duly authorized, executed, and delivered by all parties to them other than the City, and we have further assumed the due organization, existence, and powers of all parties other than the City.

Based on the foregoing, in our opinion, under current law:

1. The Bonds have been authorized and issued in accordance with the Constitution and laws of the Commonwealth of Virginia and constitute valid and binding general obligations of the City.

2. The Council of the City has the power and is authorized and required by law to levy and collect annually, at the same time and in the same manner as other taxes of the City are assessed, levied and collected, a tax upon all taxable property within the City, over and above all other taxes authorized or limited by law, and without limitation as to rate or amount, sufficient to pay when due the principal of and premium, if any, and interest on the Bonds to the extent other funds of the City are not lawfully available and appropriated for such purpose.

3. Interest on the Bonds, including any accrued "original issue discount" properly allocable to the owners of the Bonds, is excludable from gross income for purposes of federal income taxation under Section 103 of the Code and is not a specific item of tax preference for purposes of the federal alternative minimum income tax imposed on individuals and corporations. In addition, for purposes of the alternative minimum tax imposed on corporations (as defined for federal income tax purposes) under Section 56 of the Code, interest on the 2009B Bonds must be included in computing adjusted current earnings but the interest on the 2009A Bonds and the 2009C Note is excluded from adjusted current earnings. The "original issue discount" on any Bond is the excess of its stated redemption price at maturity over the initial offering price to the public at which price a substantial amount of the Bonds of the same maturity was sold. The "public" does not include bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.


In delivering this opinion, we are (i) relying upon and assuming the accuracy of certifications and representations of representatives of the City as to facts material to the opinion, and (ii) assuming continuing compliance with the Covenants (as defined below) by the City, so that interest on the Bonds will remain excludable from gross income for federal income tax purposes. The Code and the regulations promulgated thereunder contain a number of requirements that must be satisfied after the issuance of the Bonds in order for interest on the Bonds to be and remain excludable from gross income for purposes of federal income taxation. These requirements include, by way of example and not limitation, restrictions on the use, expenditure and investment of the proceeds of the Bonds and the use of the property financed or refinanced by the Bonds, limitations on the source of the payment of and the security for the Bonds, and the obligation to rebate certain excess earnings on the gross proceeds of the Bonds to the United States Treasury. The City's tax certificate for the Bonds (the "Tax Certificate") contains covenants (the "Covenants") under which the City has agreed to comply with such requirements. Failure by the City to comply with the Covenants could cause interest on the Bonds to become includable in gross income for federal income tax purposes retroactive to their date of issue. In the event of noncompliance with the Covenants, the available enforcement remedies may be limited by applicable provisions of law and, therefore, may not be adequate to prevent interest on the Bonds from becoming includible in gross income for federal income tax purposes.

We have no responsibility to monitor compliance with the Covenants after the date of issue of the Bonds.

Certain requirements and procedures contained, incorporated or referred to in the Tax Certificate, including the Covenants, may be changed and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such document.

4. Interest on the Bonds is excludable from gross income of the owners thereof for purposes of income taxation by the Commonwealth of Virginia. We express no opinion regarding (i) other Virginia tax consequences arising with respect to the Bonds or (ii) any consequences arising with respect to the Bonds under the tax laws of any state or local jurisdiction other than the Commonwealth of Virginia.

Our services as Bond Counsel have been limited to rendering the foregoing opinion based on our review of such legal proceedings as we deem necessary to approve the validity of the Bonds and the income tax status of the interest on them. We express no opinion as to the accuracy, completeness or sufficiency of the Official Statement for the Bonds or any other offering material or information that may have been relied upon by any owner of the Bonds in making a decision to purchase the Bonds.


This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur.

Very truly yours,

APPENDIX C

FORM OF CONTINUING DISCLOSURE AGREEMENT

Appendix C

Form of Continuing Disclosure Agreement

CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the City of Norfolk, Virginia (the "City"), in connection with the issuance by the City of $__________ original aggregate principal amount of its General Obligation Capital Improvement Bonds, Series 2009A (the "2009A Bonds"), $__________ original aggregate principal amount of its General Obligation Refunding Bonds, Series 2009B (the "2009B Bonds") and $__________ original aggregate principal amount of its General Obligation Bond Anticipation Note, Series 2009C (the "2009C Note" and, together with the 2009A Bonds and 2009B Bonds, the "Bonds") pursuant to a bond ordinance adopted by the Council of the City on May 5, 2009 (the "Ordinance"). The proceeds of the Bonds are being used by the City, along with other available funds, to (i) finance the City's Capital Improvement Program, as the Council may amend it from time to time hereafter; (ii) [current refund a portion of the City’s $93,520,000 General Obligation Capital Improvement and Refunding Bonds, Series 1998; (iii) advance refund a portion of the City’s $74,200,000 General Obligation Capital Improvement and Refunding Bonds, Series 2002]; (iv) fund parking projects, on an interim basis during construction; and (v) pay the costs incurred in connection with the issuance of the Bonds. Pursuant to the Ordinance, the City approved the offering and sale of the Bonds to the public pursuant to an Official Statement relating to the Bonds, dated May ___, 2009 (the "Final Official Statement"). The City has determined that it constitutes an "obligated person" within the meaning of the Rule (as hereinafter defined) with respect to the Bonds and, accordingly, hereby represents, covenants and agrees as follows:

Section 1. Purpose of the Disclosure Agreement; Representation. This Disclosure Agreement is being executed and delivered by the City for the benefit of the Holders (as defined below) and in order to assist the Participating Underwriters (as defined below) in complying with the Rule (as defined below). The City acknowledges that it is undertaking primary responsibility for any reports, notices or disclosures that may be required under this Disclosure Agreement.

Section 2. Definitions. In addition to the definitions set forth in the Ordinance, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Annual Financial Information" with respect to any Fiscal Year of the City means the following:

(i) the financial statements (consisting of at least a statement of net assets, a statement of cash flows and a statement of revenues, expenses and changes in fund net assets for all governmental/enterprise funds) of the City, which (A) are prepared annually in accordance with generally accepted accounting principles in effect from time to time consistently applied (provided that nothing in this clause (A) will prohibit the City after the date of the Final Official Statement from changing such principles so as to comply with generally accepted accounting

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principles as then in effect or to comply with a change in applicable Virginia law); and (B) are audited by an independent certified public accountant or firm of such accountants in accordance with generally accepted auditing standards as in effect from time to time; and

(ii) updates of the operating data contained in the sections in the Final Official Statement "Table II-3, Key Debt Trends," "Table II-6, Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt Per Capita," "Table III-2, Assessed Valuations and Estimated Actual Values of Taxable Property," "Table III-4, Tax Rates and Equalization Factors," "Table III-6, Real and Personal Property Tax Levies and Collections," "Table III-7, Ten Principal Real Property Taxpayers" and "Table III-14, Comparative Statement of Revenue and Expenditures, General Fund."

"Dissemination Agent" shall mean the City, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

“EMMA” shall mean the Electronic Municipal Market Access System, described in Securities Exchange Act of 1934 Release No. 59062 and maintained by the MSRB for purposes of the Rule.

"Fiscal Year" shall mean the twelve-month period, at the end of which the financial position of the City and results of its operations for such period are determined. Currently, the City's Fiscal Year begins July 1 and continues through June 30 of the next year.

"Holder" shall mean, for purposes of this Disclosure Agreement, any person who is a record owner or beneficial owner of an Obligation.

"Make Public" or "Made Public" has the meaning set forth in Section 4 of this Disclosure Agreement.

"MSRB" shall mean the Municipal Securities Rulemaking Board.

"NRMSIR" shall mean each nationally recognized municipal securities information repository approved as such by the SEC from time to time.

"Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with the offering of such Bonds.

"Rule" shall mean Rule 15c2-12 under the Securities Exchange Act of 1934 and any similar rules of the SEC relating to disclosure requirements in the offering and sale of municipal securities, all as in effect from time to time.

"SEC" shall mean the U.S. Securities and Exchange Commission.

"SID" shall mean any state-based information depository existing from time to time in the Commonwealth of Virginia for the purpose of receiving information concerning municipal securities and recognized as such by the SEC.

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Section 3. Obligations of the City. (a) The City shall complete the preparation of the Annual Financial Information with respect to any Fiscal Year of the City not later than 270 days after the end of such Fiscal Year.

(b) The City shall, in accordance with the Rule, Make Public or cause to be Made Public by the Dissemination Agent (if different from the City), the Annual Financial Information within 30 days after it is prepared.

(c) The City shall Make Public or cause to be Made Public by the Dissemination Agent (if different from the City), in a timely manner, notice of any of the following events that may from time to time occur with respect to the Bonds, but with respect to the items in (i) through (xi), only if material:

(i) principal and interest payment delinquencies;

(ii) non-payment related defaults;

(iii) unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) unscheduled draws on any credit enhancement maintained with respect to the Bonds reflecting financial difficulties;

(v) substitution of credit or liquidity providers, or their failure to perform;

(vi) adverse tax opinions or events affecting the tax-exempt status of interest on the Bonds;

(vii) modifications to rights of Holders;

(viii) bond calls;

(ix) defeasances;

(x) release, substitution, or sale of property securing repayment of the Bonds;

(xi) rating changes; and

(xii) the failure of the City on or before the date required by this Disclosure Agreement to provide Annual Financial Information to the persons and in the manner required by this Disclosure Agreement;

provided that nothing in this subsection (c) shall require the City to maintain any debt service reserve, credit enhancement or credit or liquidity providers with respect to the Bonds or to pledge any property as security for repayment of the Bonds.

(d) The City shall notify each NRMSIR (as defined below) of any change in its Fiscal Year not later than the date on which it first provides any information to the NRMSIRs in the current Fiscal Year.

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Section 4. Information Made Public. Information shall be deemed to have been "Made Public" for purposes of this Disclosure Agreement if transmitted to each of the following as herein required:

(i) each NRMSIR, at its then current address, including the following NRMSIRs existing as of the date hereof:

Bloomberg Municipal Repository 100 Business Park Drive Skillman, NJ 08558 Phone: (609) 279-3225 Fax: (609) 279-5962 http://www.bloomberg.com/markets/rates/municontacts.html Email: [email protected]

DPC Data Inc. One Executive Drive Fort Lee, NJ 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 http://www.MuniFILINGS.com Email: [email protected]

Interactive Data Pricing and Reference Data, Inc. Attn: NRMSIR 100 William Street, 15th Floor New York, NY 10038 Phone: (212) 771-6999; (800) 689-8466 Fax: (212) 771-7390 http://www.interactivedata-prd.com Email: [email protected]

Standard & Poor's Securities Evaluations, Inc. 55 Water Street 45th Floor New York, NY 10041 Phone: (212) 438-4595 Fax: (212) 438-3975 http://www.disclosuredirectory.standardandpoors.com/ Email: [email protected]

(ii) at its then current address, the SID, if any; provided that in the case of any

information Made Public under Section 3(c), such information may be provided to the MSRB at the following address (or such other address as may at the time be in effect), in lieu of providing it to the NRMSIRs as described in clause (i) above:

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Municipal Securities Rulemaking Board 1900 Duke Street Suite 600 Alexandria, Virginia 22314 Phone: (703) 797-6600 Fax: (703) 797-6704

Section 5. Incorporation by Reference. Any or all of the Annual Financial

Information may be incorporated by reference from other documents, including official statements containing information with respect to the City, which have been filed with each of the NRMSIRs or the SEC. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The City shall clearly identify each such other document so incorporated by reference.

Section 6. CUSIP Numbers. The City shall reference, or cause the Dissemination Agent (if different from the City) to reference, the CUSIP prefix number for the Bonds in any notice provided to the NRMSIRs, the MSRB and/or the SID pursuant to Sections 3 and 4.

Section 7. Termination of Reporting Obligation. The obligations of the City under this Disclosure Agreement shall terminate upon the earlier to occur of the legal defeasance or final retirement of the Bonds.

Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement and may discharge any such Agent, with or without appointing a successor Dissemination Agent. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent.

Section 9. Amendment. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, if such amendment is supported by an opinion of independent counsel with expertise in federal securities laws addressed to the City and to the Participating Underwriters for the Bonds to the effect that such amendment is permitted or required by the Rule.

Section 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of occurrence of an event listed in Section 3(c), in addition to that which is required by this Disclosure Agreement. If the City chooses to report any information in any Annual Financial Information or include any information in a notice of occurrence of an event listed in Section 3(c), in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Financial Information or notice of occurrence of such an event.

Section 11. Default. Any Holder, whether acting jointly or severally, may take such action as may be permitted by law against the appropriate public official to secure compliance

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with the obligations of the City under this Disclosure Agreement. In addition, any Holder, whether acting jointly or severally, may take such action as may be permitted by law to challenge the adequacy of any information provided pursuant to this Disclosure Agreement, or to enforce any other obligation of the City hereunder. A default under this Disclosure Agreement shall not be deemed an event of default under the Ordinance or other debt authorization of the City, and the sole remedy under this Disclosure Agreement in the event of any failure of the City to comply herewith shall be an action to compel performance. Nothing in this provision shall be deemed to restrict the rights or remedies of any Holder pursuant to the Securities Exchange Act of 1934, the rules and regulations promulgated thereunder, or other applicable laws.

Section 12. Central Post Office. Any filing under this Disclosure Agreement may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http://www.disclosureusa.org unless the SEC has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004.

Section 13. EMMA. Notwithstanding anything contained herein to the contrary, on or after July 1, 2009 (or such other date as may be announced by the SEC or the MSRB as the effective date for filing via EMMA), information shall be deemed to have been "Made Public" for purposes of this Disclosure Agreement if transmitted solely to the MSRB via EMMA, as described in Securities Exchange Act of 1934 Release No. 59062. Should the SEC approve any additional or subsequent internet-based electronic filing system for satisfying the continuing disclosure filing requirements of the Rule, any filings required under this Disclosure Agreement may be made by transmitting such filing to such system, as described in the applicable SEC regulation or release approving such filing system.

Section 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Participating Underwriters and Holders from time to time of the City's Bonds, and shall create no rights in any other person or entity.

Section 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

[The Remainder of This Page is Intentionally Left Blank]

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Date: May ___, 2009


By: ______________________________________ City Manager, City of Norfolk, Virginia

By: ______________________________________ Acting Director of Finance, City of Norfolk, Virginia

Approved as to Form and Correctness: _______________________________ Office of City Attorney City of Norfolk, Virginia

[Signature Page to Continuing Disclosure Agreement]

CITY OF NORFOLK, VIRGINIA - FPR · 2013 3,360,000 2.250 1.650 102.560 FS3 ... Norfolk's Educational...

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